According to Section 138 of The Negotiable Instruments Act, 1881, The dishonour of cheque is a criminal offence and is punishable by imprisonment up to 2 years or with monetary penalty (which may be twice the amount of the cheque if found guilty ) or with both.
It is said that a contract has been formed between the issuer and the holder of the cheque and there should be no breach of contract. So, if the cheque is dishonoured it will be considered as breach of contract which is a criminal offence.
- Dishonor of cheque (Section 138 – 142) this chapter was inserted in 1988.
- Classification: No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.
- Jurisdiction: The court within whose jurisdiction the branch of the bank where the payee maintains the account is situated, will have jurisdiction to try the offence
- if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or
- If the cheque is presented for payment by the payee or holder in due course otherwise through an account, the branch of the drawee bank where the drawer maintains the account, situated.
- Explanation: For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account”
- What is dishonor of cheque –These are cheques that a bank on which is drawn declines to pay (“honour”).
- Process for what you may do if your cheque is dishonoured?
- Validity of a cheque – 3 month
- Cheque dishonored (Return Memo assigned by the bank along with the cheque assigns the reaons for dishonor)
- Reasons for dishonor of cheque –
- Insufficient funds
- Stop payment (counter manded payment)
- Closed account
- Signature/ Account no. mismatch
- Suspicion of a forged cheque etc.
- Serve notice to payer within one month (30 days) of dishonor
- Serving notice is a condition precedent for filing a complaint. There is no prescribed format for notice.
- Information of dishonorment of cheque and 15 days for process of payment in notice.
- Notice should be in written format
- Process payment within 15 days by payer.
- If payment made by the payer in these 15 days then no action can be taken,
- If no payment – Then cause of arises from 16th day.
- Documents need to be furnish while registering the case-
- Original cheque
- Return memo
- Demand notice
- Postal receipt
- Section 143A (Amendment, 2018)
- It gives the Court power to order the drawer of the cheque to pay Interim Compensation to the complainant:
- In case of a summary trial or a summons case, where the drawer pleads not guilty to the allegations made in the complaint, and
- In any other case, upon framing of the charges.
- Quantum of Compensation The amount of compensation which can be awarded shall not exceed 20% of the total cheque amount.
- On Acquittal There may arise certain situations in which the drawer is acquitted and payee is directed to refund the entire amount of interim compensation. Such refund will be in addition to the RBI’s Prevailing interest rate.
- Time Frame The intermediate compensation will have to be paid within 60 days from the date of the order by the court. This period is extendable to 30 days. Extension will be granted only when the applicant is successful in satisfying the Court that he had genuine reasons for the delay.
- It gives the Court power to order the drawer of the cheque to pay Interim Compensation to the complainant:
- Vinay Devanna Nayak v. Ryot Sewa Sahakari Bank Ltd.
Case/Complaint can be dropped if after filing of complaint full payment has been recived.
Note : If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases.
Dear readers, stay tuned for next article. Also, if you have any queries or suggestions let me know in comment section or mail us at lawgicalfirst@gmail.com
Source –
1. https://www.indiainfoline.com/
2. https://youtu.be/t9mqSkrFQ80
3. https://youtu.be/S5vQA1O0XXY
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