ESSENTIALS OF SECTION 138 OF NEGOTIABLE INSTRUMENT ACT

ESSENTIALS OF SECTION 138 OF NEGOTIABLE INSTRUMENT ACT

INTRODUCTION:

This blog will cover the essentials of section 138 of Negotiable Instrument Act along with judicial precedents. Section 138 of Negotiable Instrument Act 1881, hereinafter mentioned as NI Act, envisage a right of the aggrieved person whose cheque has been dishonoured and returned by the bank due to insufficient balance in the account of the drawer of the cheque or it exceeds the amount specified in the agreement between the bank and the drawer. In the earlier blog all the basic aspects of section 138 have been covered further the present blog will emphasize the essentials of section 138 of the Negotiable Instrument Act in detail.  

SECTION 138 of Negotiable Instrument Act:

The NI Act 1881 was amended in 1988 thereby chapter XVII was incorporated that is Section 138 to section to section 147, the objective behind the same was to secure and strengthen the credibility of the instrument. It imposes punishment and penalties in case of dishonor of cheque. The purpose for the aforesaid amendment is to address the issue concerning the delay in final resolution of cheque dishonor proceedings. Besides this NI Act has been amended various time further in 2015, 2017 and 2018.

In Kusum Ingots & Alloys Ltd. v. Pennar Peterson Securities Ltd., (2000) 2 SCC 745 apex courtdivision bench had expounded the objective of chapter XVII of NI Act as under:

8. It is relevant to note here that Chapter XVII of the NI Act in which the aforementioned sections are included was inserted in the Act w.e.f. 1-4-1989 by Act 66 of 1988. The object of bringing Section 138 on statute is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments.

Section 138.   Dishonour of cheque for insufficiency, etc., of funds in the account:

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 out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour 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, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless–

a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) 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 thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) 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 purposes of this section, debt of other liability means a legally enforceable debt or other liability.

ESSENTIALS of section 138 of NEGOTIABLE INSTRUMENT Act:

There are certain key elements which need to be present to file a complaint under section 138 of the NI Act without the same a complaint under section 138 is not maintainable. Moreover, the magistrate who is empowered to take cognizance under section 142 on the said complaint will be barred by the law to proceed and take cognizance. The apex court in Kusum Ingots & Alloys Ltd. (supra) court ascertained and emphasized the ingredients of section 138 of the NI Act as under in para 10:

  1. a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability;
  2. that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
  3. that cheque is returned by the bank unpaid, either because the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
  4. the payee or the holder in due course of the cheque 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 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
  5. the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice.

The aforesaid observation was further upheld by the Supreme Court in 3 judges’ bench case Yogendra Pratap Singh v. Savitri Pandey, (2014) 10 SCC 713. In the said case court also witnessed an issue about a situation when a complaint is filed under section 138 without completion of 15 days after serving of demand notice under section 138(c) of the NI Act. (read more)

In Jugesh Sehgal v. Shamsher Singh Gogi, (2009) 14 SCC 683:

In para 13 court enunciated the ingredients of section 138 of the NI Act. The court further observed that where the ingredients of section 138 of the NI Act are not established their continuance of proceeding against the accused would be abuse of process of law. In the present case, it was asserted and proved that the bank account from where the cheque was dishonoured was not in the name of the accused against whom the complaint was filed under section 138 of NI Act, therefore essentials of section 138 of NI Act are not satisfied.

CONCLUSION:

It could be inferred from the precedents mentioned that all the ingredients of section 138 of the NI Act must be established to adjudicate the offence and proceed against any person who is a cheque drawer. A complaint is not maintainable in a case where the essentials of section 138 of the NI Act are not satisfied, and the court will not proceed against the accused person; otherwise, the same would lead to the abuse of the process of law.

SECTION 138 OF THE NEGOTIABLE INSTRUMENT ACT

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