Section 138 of the Negotiable Instrument Act
Section 138 of the Negotiable Instruments Act, 1881 (NI Act) is a provision that deals with dishonour of cheques due to insufficiency of funds in the account of the drawer. This provision was introduced to encourage the use of cheques and to provide a legal remedy for the payee in case of dishonour of cheques.
Under Section 138 of the NI Act, if a cheque is dishonoured due to insufficient funds in the account of the drawer or for any other reason, the payee can initiate legal action against the drawer. The payee has to give a notice in writing to the drawer within 30 days of dishonour of the cheque demanding payment of the cheque amount. The drawer has 15 days from the receipt of the notice to make the payment. If the payment is not made within 15 days, the payee can file a complaint before a magistrate within 30 days of the expiry of the 15-day period.
If the court is satisfied that the cheque was dishonoured due to insufficient funds in the account of the drawer and that the drawer had knowledge of such insufficiency at the time of issuing the cheque, it can impose a penalty of twice the amount of the cheque or imprisonment for a term of up to two years or both. The court may also order the drawer to pay compensation to the payee for any loss or damage caused by the dishonour of the cheque.
It’s important to note that Section 138 of the NI Act is a criminal provision and should be used as a last resort after other remedies have been exhausted. If you have been served with a notice under Section 138, it’s important to seek legal advice to understand your rights and options.
Avocate: J.S. Rohilla