A negotiable instrument is a document that guarantees payment of a specific amount of money to a specified person or the payee. It contains key information such as principal amount, interest rate, date and signature of the payer. There are different kinds of negotiable instruments; some of them are- personal cheque, promissory note, certificate of deposit, money order and so on.
NEGOTIABLE INSTRUMENTS ACT, 1881
Negotiable Instruments Act, 1881 is an Act in India, to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. According to Section 13 (a) of the Act, “Negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word “order” or “bearer” appear on the instrument or not.
A bounced cheque or bad check is defined as an unsuccessful processing of a dispensed cheque due to several reasons. A cheque is bounced if the issuer of the cheque has insufficient funds available to fulfil the payment amount on the cheque to the payee. In other words, cheque bounce occurs if the issuer does not have enough money in their account to pay the cheque. Moreover, if the bank spots a fraudulent cheque, for instance- mismatch signature, overwriting or if the issuer has used all its overdraft facility, then also the cheque will get bounced.
SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881
In case of a cheque bounce due to insufficient funds in bank account, it is a criminal offence and the payee; the person or the bank, can file a complaint before the Magistrate under Section 138 of the Negotiable Instruments Act, 1881. However the complaint should be registered in the Magistrate’s Court within a month of the expiry of the Notice period (Notice period given to make the fresh payment is- within 30 days of receiving the Notice)
PUNISHMENT UNDER NEGOTIABLE INSTRUMENTS ACT, 1881
In India, a person issuing a bad cheque, if the cheque is dishonoured due to insufficient funds, will be considered guilty of committing a criminal offence. Therefore, cheque bounce offence is punishable with imprisonment for a term up to two years or with fine twice the amount of the cheque or both as per the Negotiable Instruments Act, 1881.
AMENDMENT OF SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 IN THE YEAR 2020
The provision now allows the court trying an offence related to cheque bounce, to direct the drawer to pay interim compensation not exceeding 20% of the cheque amount to the complainant within 60 days of the trial of the court’s order to pay such compensation.
OTHER REMEDY IN CASE OF CHEQUE BOUNCE
A FIR can be filed against the person who issued a bad cheque, under Section 420 of the Indian Penal Code, 1860 – Cheating, Section 406 of the Indian Penal Code, 1860- Criminal breach of trust. A separate civil suit can also be filed for the recovery of money, including the cost borne and the lost interest.
LANDMARK JUDGEMENTS ON SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT
- Dalmia Cements v. Galaxy Trading Agencies
- Canara Bank v. Canara Sales Corporation
- M/s Meters and Instruments Private Limited & Anr. V. Kanchan Mehta
Authored by- Nirzana Banikya, Guwahati, Assam.