Legal Dilemma: Can Bouncing Two Cheques Lead to a Strong Case Under Section 138?

Sir,

A gives a cheque to B. The cheque bounces. A legal notice is sent to A. Upon receipt of the notice, A approaches B and gives a fresh cheque for the same amount and the same cause of action, promising to honor it on presentation. However, the second cheque also bounced. Therefore, B sent another legal notice to A. Since the notice was not replied to, A wants to file a complaint under section 138 of the Negotiable Instruments Act. Would this be a strong case in law? Please advise.

Thank you.

Why Should A File a Complaint?

It should be B who may want to file a case for bounced cheques. Yes, it gives rise to action under Section 138 of the Negotiable Instruments Act.

Extract of Section 138

Section 138 in The Negotiable Instruments Act, 1881

[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 the amount of money standing to the credit of that account is insufficient to honour the cheque or 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 a 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.

Yes, a good case, provided the action is taken within the prescribed period.

Yes, B can file a case against A under NIA 138. You have wrongly mentioned A instead of B. Though the cause was the same, B has acquired the cheque with the intention to square up the debt. Here A seems to be a willful defaulter, and in other words, we may interpret that A is harassing B mentally and monetarily.

Hello Vadayar,

Like other members pointed out, it's B who will be eligible to file the case under Section 138 of the NIA. However, NIA covers cheque bouncing due to insufficient funds. Please ascertain whether A has not issued stop payment instructions to his bank for the cheque issued... in which case, I think the situation could get tricky. Some people do adopt this route to buy time, though it is not morally or ethically correct.

Regards,
TS

If the drawer does not respond within 30 days of notice, after the 15th day from the last day of the notice, file a criminal complaint under Section 138 of the NI Act 1881. If not, you will forfeit your right to claim under Section 138.

Understanding Payment by Cheque in Settlement of Debt

The most important part of this section is the payment by cheque 'in settlement of debt due or a liability.' In this case, if you can prove that A owed money to B on account of some transaction, which gives rise to the situation that A is obliged to pay B (for example, goods sold by B to A), then yes, there is a good case.

However, if A is giving a simple advance to B (or a loan to B) and such a cheque bounces, then there is no prior debt or obligation to pay, and therefore, there cannot be any case against A.

Considerations for Filing Under Section 138 of the NI Act

I agree with what is stated by seniors, but I am looking at it from a different angle. The main essence or weightage should be given to whether the lender will be able to recover the money lent by filing a case under Section 138 of the NI Act. By filing a case under Section 138 of the NI Act, the lender may or may not recover his money. At most, the court may order imprisonment for 3 or 6 months for the defaulter, but after the punishment, the main question of money will remain unresolved. There are numerous cases pending in various courts under the NI Act. I think it will take 4 to 6 months just to appear on the board. There are no fast-track courts for disposing of cases under the NI Act.

Thought must be given before filing a case under the NI Act. Issuing a notice through a lawyer is advisable for mere threats, but seasoned or habitual defaulters may ignore such notices. It is better for you to keep in touch with the defaulter, update him on your financial crisis, and tactfully recover your money. Furthermore, after serving a notice to the defaulter, if he makes a partial payment and you accept it, then you cannot sue him under Section 138 of the NI Act. In that case, you will have to obtain a fresh cheque for the remaining amount. Please remember, this is a vicious circle.

Regards, A. Prakash

Understanding NI 138 Cases

The query is based on incorrect information. In NI 138 cases, the complainant gets back the money if the charge is proved. Nowadays, the punishment awarded is nominal—till the raising of the court. However, this is a difficult task; being a criminal case, the charge needs to be proved beyond reasonable doubt.

It is true that the disposal of the case takes much time. This is because of the widespread abuse indulged by the so-called blade mafia and the advocates who are willing to be less than professional. The modus operandi is an open secret. Money is advanced at usurious rates against blank undated and unsigned cheques. The cheques are subsequently filled up, and cases against a fancy sum under the NI Act are filed even if the borrower has cleared his debt and interest! This type of case constitutes 90% of the pending cases. Real cases are few and far between.

I agree with Mr. A. Prakash. It is often a very frustrating experience to file a suit under Section 138 of the NI Act for recovering the amount of a bounced cheque. The absence of the defendant(s), repeated adjournments sought by the advocates, non-service of summons, and also the warrants (defendants change the address and warrants could not be served) are the main reasons. Sometimes the local police are also parties in such cases of non-serviceability of the summons or warrants.

Alternative Legal Approach

A better method is to take an acknowledgment of debt (balance confirmation letter) from the party who owes you money and file what is called a "summary suit" in the civil court, under which the recovery of principal is perhaps faster.