A cheque is a financial instrument that plays a crucial role in the business and financial world. It is a form of bill of exchange, and is drawn upon a specified banker, and is payable only on demand by the applicant. In legal terms, the individual or organisation issuing the cheque is known as the ‘drawer’, and the individual or organisation in whose favour the cheque has been issued is known as the ‘drawee’.
DISHONOURING OF CHEQUES [S.138]
A cheque is said to be bounced or dishonoured when an unpaid cheque is returned by the bank. This can occur due to various reasons, such as insufficiency of funds in the account of the ‘drawer’, a mismatch of signatures, overwriting on the cheque, or if there is a doubt of fraud or forgery. A cheque bounce is considered a criminal offence, as per Section 138 of the Negotiable Instruments Act, 1881 and the punishment for the offence made out under Section 138 is imprisonment for up to two years, or with fine up to twice the amount of the cheque, or with both.
To constitute an offence under section 138 of Negotiable Instruments Act, there must be:
- Drawing of the cheque.
- Presentation of the cheque to the bank within the period of its validity.
- Returning the cheque by the drawee bank.
- Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount within thirty days of the receipt of information from the bank regarding the return of the cheque unpaid.
- Failure of the drawer to make payment within fifteen days of the receipt of the notice.
- Cheque must be given for the discharge, in whole or in part, of any debt or other liability but that debt or other liability must be legally enforceable.
In addition to this, the aggrieved party can also file a civil suit for recovery of the cheque amount along with the cost of litigation and interest.
Recent Amendments to the Negotiable Instruments Act:
One of the key amendments is the insertion of Section 143-A in the Act, which allows the Court to order the drawer of the cheque to pay interim compensation to the complainant. The Amendment Bill inserts Section 143-A within the Act of 1881, making provision for the payment by the drawer of the dishonoured cheque to the payee thereof of interim compensation of an amount not exceeding 20% of the worth of the instrument during the pendency of proceedings for the offence of dishonour under Section 138 of the Act (a) in a summary trial or a summons case, where the drawer pleads not guilty to the accusation made in the complaint; and (b) in the other case, upon framing of charge.
The said interim compensation got to be paid within a period of 60 days from the date on which the order thereto effect is formed. The interim compensation so recovered shall be deductible from the quantity of fine imposed under Section 138 by the Magistrate upon conviction of the drawer or any compensation directed to be paid under Section 357 of Code of Criminal Procedure, 1973. Section 138 of the Act of 1881 provides for imposition of a sentence of imprisonment not exceeding a period of two years or fine extending to twice the amount of the dishonoured cheque or even both. The said amount of interim compensation may also be recovered within the manner provided under Section 421 of Cr. P. C – by way of attachment and sale of any movable property of the drawer or a warrant to the Collector of the concerned district to recover an equivalent as arrears of land revenue from the movable or immovable property of the drawer. If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the quantity of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the start of the relevant year.
