Cheque Dishonour under Section 138 of the Negotiable Instruments Act, 1881: Balancing Payee Rights and Criminal Liability: AUTHOR: Subashree M
Cheques are widely used as a mode of payment in commercial and personal transactions. The reliability of cheque transactions depends upon the assurance that a cheque issued by the drawer will be honoured when presented by the payee. When a cheque is returned unpaid, it may affect the financial interests of the payee and reduce confidence in cheque-based transactions. Section 138 of the Negotiable Instruments Act, 1881, provides a statutory remedy in cases where a cheque is dishonoured for the reasons covered under the provision and the drawer fails to make payment within the prescribed period after receiving the statutory notice
ARTICLE
Abstract
Cheques are widely used as a mode of payment in commercial and personal transactions. The reliability of cheque transactions depends upon the assurance that a cheque issued by the drawer will be honoured when presented by the payee. When a cheque is returned unpaid, it may affect the financial interests of the payee and reduce confidence in cheque-based transactions. Section 138 of the Negotiable Instruments Act, 1881, provides a statutory remedy in cases where a cheque is dishonoured for the reasons covered under the provision and the drawer fails to make payment within the prescribed period after receiving the statutory notice. The provision makes certain instances of cheque dishonour a criminal offence. This article examines the essential of Section 138, the rights of the payee, the criminal liability of the drawer and the statutory safeguards available to the drawer.
Keywords
Cheque Dishonour, Section 138, Negotiable Instruments Act, Drawer, Payee, Holder, Criminal Liability, Statutory Notice, Legally Enforceable Debt.
Introduction
A cheque is an important negotiable instrument used for making payments without the immediate transfer of cash. When a cheque issued towards the discharge of a legally enforceable debt or other liability is returned unpaid, the payee may face financial difficulty. To protect the credibility of cheques and provide a legal remedy in such circumstances, Section 138 was incorporated into the Negotiable Instruments Act, 1881. The provision creates criminal liability for certain cases of cheque dishonour when the statutory requirements are satisfied.
Meaning of Cheque Dishonour
Cheque dishonour occurs when a cheque presented for payment is returned unpaid by the bank. One of the common reasons for dishonour is insufficiency of funds in the drawer’s account. However, every instance of a cheque being returned unpaid does not automatically constitute an offence under Section 138. The cheque must have been drawn for the discharge, in whole or in part, of a legally enforceable debt or other liability, and the dishonour must be for a reason covered by Section 138.
Essential of Section 138
Section 138 prescribes certain conditions for criminal liability to arise. The cheque must have been drawn by the drawer on an account maintained by him with a banker and must have been Issued for the discharge, in whole or in part, of a legally enforceable debt or other liability. The cheque must be presented within the period prescribed under the Act. If the cheque is returned unpaid for a reason covered by Section 138, the payee or holder in due course must issue a written demand notice to the drawer within thirty days of receiving information regarding the dishonour from the bank.
After receiving the statutory notice, the drawer is given an opportunity to make payment. If the drawer fails to make payment within fifteen days from the date of receipt of the notice, the payee or holder in due course may initiate a complaint in accordance with the provisions of the Act.
Rights of the Payee
· Section 138 provides a statutory remedy to the payee when a cheque issued towards a legally enforceable debt or other liability is dishonoured. The payee can issue a statutory notice to the drawer within the prescribed period and provide the drawer an opportunity to make payment. If the drawer fails to make payment within fifteen days of receiving the notice, the payee may initiate criminal proceedings subject to the requirements of the NI Act.
· Section 139 also provides a presumption in favour of the holder of the cheque. It presumes, unless the contrary is proved, that the holder of a cheque received it for the discharge, in whole or in part, of a debt or other liability. This presumption is rebuttable and the drawer may raise a legally permissible defence.
Criminal Liability of the Drawer
The criminal liability of the drawer under Section 138 does not arise merely because a cheque has been returned unpaid. The cheque must have been issued towards a legally enforceable debt or other liability, the requirements relating to presentation and statutory notice must be complied with, and the drawer must have failed to make payment within fifteen days of receiving the notice.
Thus, Section 138 provides the drawer with an opportunity to make payment before criminal proceedings are initiated. The provision therefore seeks to ensure that criminal liability arises only when the conditions specifically prescribed by law are fulfilled.
Balancing Payee Rights and Criminal Liability
Section 138 attempts to maintain a balance between the rights of the payee and the criminal liability of the drawer. The payee is provided with a statutory remedy when a cheque issued towards a legally enforceable debt or other liability is dishonoured. At the same time, the drawer is given an opportunity to make payment after receiving the statutory notice.
The requirement of a legally enforceable debt or other liability, issuance of statutory notice and the fifteen-day period for making payment ensures that criminal proceedings are not initiated merely because a cheque has been returned unpaid. Therefore, the provision provides a legal remedy to the payee while incorporating safeguards for the drawer.
Conclusion
Section 138 of the Negotiable Instruments Act, 1881, plays an important role in maintaining the credibility of cheque transactions. It provides the payee with a statutory remedy when a cheque issued towards a legally enforceable debt or other liability is dishonoured and the drawer fails to make payment after receiving the statutory notice. At the same time, criminal liability is subject to the fulfilment of the statutory requirements. The provisions relating to presentation of the cheque, statutory notice, opportunity to make payment and presumptions under the Act create a legal framework governing the rights and liabilities of the drawer and payee. Thus, Section 138 seeks to protect the reliability of cheque transactions while ensuring that criminal liability is imposed only in accordance with the requirements of law.