Introduction
Negotiable Instruments have been used in commercial world since long as one of the convenient modes for transferring money. Development in Banking sector and with the opening of new branches, cheque become one of the favourite Negotiable Instruments. When cheques were issued as a Negotiable Instruments, there was always possibility of the same being issued without sufficient amount in the account.
With a view to protect drawee of the cheque need was felt that dishonour of cheque he made punishable offence. With that purpose Sec.138 to 142 were inserted by Banking Public Financial Institutions and Negotiable Instruments clause (Amendment) Act, 1988.
This was done by making the drawer liable for punishments in case of bouncing of the cheque due to insufficiency of funds with adequate safeguards to prevent harassment of an honest drawer.
Let us discuss Section 138 in detail:
Dishonour of cheque for insufficiency, etc., of funds in the accounts [Section 138]
Where any cheque drawn by a person on an account maintained by him with a banker-
- for payment of any amount of money
- to another person from that account
- for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid,
either because: - amount of money standing to the credit of that account is insufficient to honor the cheque, or
- that it exceeds the amount arranged to be paid from that account by an agreement made with that bank,
such person shall be deemed to have committed an offence and shall, be punished with imprisonment for
a term which may extend to two years, or with fine which may extend to twice the amount of the cheque,
or with both. - Author’s Note: A cheque given as gift or donation, or as a security or in discharge of a mere moral
obligation, or for an illegal consideration, would be outside the purview of this section.
Example: X issued a post-dated cheque to Y on the account of discharge of its liability. Further, X
instructed to the bank to stop the payment due to unavailability of the adequate amount in the account.
Here, in this instance section 138 of the Act is attracted as when a cheque is dishonoured on account of
stop payment instructions sent by the drawer to his banker in respect of a post- dated cheque irrespective of insufficiency of funds in the account. A post-dated cheque is deemed to have been drawn on the date it bears and the three months period for the purposes of section 138 is to be counted from that date. So, X will be liable for dishonour of cheque.
Section 138 shall not apply in the following case:
Unless the below given conditions are complied with-
(a) Cheque presented within validity period: The cheque has been presented to the bank within a
period of three months from the date on which it is drawn or within the period of its validity, whichever is
earlier.
(b) Demand for the payment through the notice: The payee or the holder in due course of the cheque,
as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in
writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank
regarding the return of the cheque as unpaid, and
(c) Failure of drawer to make payment: The drawer of such cheque fails to make the payment of the
said amount of money to the payee or, as the case may be, to the holder in due course of the cheque,
within fifteen days of the receipt of the said notice.
Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt or
other liability.
Therefore, we may conclude that compliant can be filed after 45 days of dishonor of the cheque i.e., 30
days of notice period +15 days of the receipt of the said notice.
For a detailed explanation: Watch the video and learn law like never before!
For Best CA Foundation Law Online Classes visit: https://capreetiaggarwal.com/product-category/ca-foundation-law-classes/
![](https://capreetiaggarwal.com/wp-content/uploads/2023/03/CA-PREETI-AGGARWAL_TML-750x1024.jpg)
CA Preeti Aggarwal
Youtube channel : https://www.youtube.com/channel/UCK2SIQwBHYmVg8WNGRfgVeA