Unpaid Cheque

CHAPTER XVII
Section 138
PENALTIES IN CASE OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNTS

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 extend to two year"], 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 induce 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 cheques 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 purpose of this section, "debt or other liability" means a legally enforceable debt or other liability

AS PER SECTION 25 (5) OF PAYMENT AND SETTLEMENT SYSTEMS ACT 2007 applicable in case of ECS

(5) The provisions of Chapter XVII of the Negotiable Instruments Act, 1881(26 of 1881) shall apply to the dishonour of electronic funds transfer to the extent the circumstances admit.

For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability, as the case may be.

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The Supreme Court has ruled that criminal proceedings for issuing a cheque without sufficient balance in the account would be valid only if it is drawn for discharging a debt or liability. If it is issued to satisfy the terms of a compromise or settlement, Section 138 of the Negotiable Instruments Act could not be used to proceed against the drawer of the cheque. The payee or the holder in due course (Receiver) should have issued a notice in writing to the drawer (Who issued the cheque) with in thirty days of the receipt of information by him from the bank regarding the return of cheque as unpaid.

 After the receipt of the said notice the drawer should pay the cheque amount with in fifteen days of the receipt of the said notice.



On non-payment of the amount due on dishonoured cheque within fifteen days of the receipt of notice by the drawer, the complaint should have been filed within one month from the date of expiry of grace time of fifteen days, before a Metropolitan Magistrate not below the rank of a Judicial Magistrate of the First Class. The cognizance of a complaint may be taken by the court after the prescribed period, if the complaint satisfies the court that he had sufficient case for not making complaint within such period.

The Offence under this act is compoundable

In ILR 2000 Kar. 1570 (DR. K.G. RAMACHANDRA GUPTHA VS. DR. G. ADI NARAYAN) it has been held by the Hon’ble High Court that there is a presumption U/s. 139 of the N.I. Act that cheques have been issued towards discharge of an antecedent liability and it is for the accused to rebut the said presumption by adducing evidence and the burden is not on the complainant to prove that the cheques in question have been issued towards discharge of a debt or other liability