Dishonour of cheque for insufficiency of funds (Section 138 of NI Act)
As per Section 138 of Negotiable Instruments Act 1881, Cheque drawn for payment for discharge of any debt or other liability, is returned by the bank unpaid due to insufficient funds or exceeding the arrangement (in case of CC/OD account), such person is deemed to have committed an offence.
Consqueces of dishonour of cheque or Punishment for dishonor of cheque
Imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.
Read: Difference between promissory note and bill of exchange
Conditions for punishment under Section 138
- The cheque has been, presented within a period of three months from the date on which it is drawn or within the period of its validity, whichever is earlier.
- 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 fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
- 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.
Cognizance of offences (Section 142)
No court can take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;
Complaint for dishonor of cheque:
Complaint for dishonor of cheques is required to be made in the court of a metropolitan magistrate or a judicial magistrate of first class within one month of the date of cause of action i.e., one month from lapse of 15 days of giving notice for demand of amount of cheque.
Offences by companies (Section 141)
If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
A person shall not be liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.
Where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
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