What is Section 138?
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 provisions 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 or other liability” means a legally enforceable debt or other liability.”
What are the ingredients to Section 138 of the Negotiable Instruments Act?
The cheque should have been issued for the discharge, in whole or part, of any debt or other liability.
The cheque should have been presented within a period of six months normally or within its validity period whichever is earlier.
The payee or holder in due course should have issued a notice in writing to the drawer within 30 days of the receipt of information by him from the Bank regarding the return of the cheque as unpaid.
After receipt of the said notice from the holder in due course, the drawer should have had failed to pay the cheque within 15 days of receipt of the said notice.
How can you prevent yourself from ending up in a situation where a cheque written by you is returned by the bank?
We should make sure that our bank account has more than sufficient balance to felicitate the payment of the amount mentioned on the cheque. One of the primary reasons that cheques are returned by the bank is because of Non-Sufficient funds in the account of the person from whose account money is to be withdrawn.
What is the punishment for a cheque bounce?
In India the punishment for cheque bounce which is mentioned in Section 138 of the Negotiable Instruments Act. It says that a person may 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 as decided by the court.
What are the fines and charges for a cheque bounce and who pays them?
If a cheque bounces due to insufficient funds (NSF) or any other technical reason, such as signature mismatch, both the defaulter and the payee are charged by their respective banks. The penalty charges for cheque outward return are around near Rs. 300 for most banks, while charges for cheque inward return are about Rs. 100 in India. The penalty charges vary from bank to bank and are different for different types of account. Premium accounts usually have higher penalty charges than other accounts.