138 Ni Act Procedure

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The Negotiable Instruments (NI) Act, 1881 is an important legislation that governs the legal framework for transactions involving negotiable instruments like cheques, promissory notes, and bills of exchange. Section 138 of the NI Act deals with the legal implications of dishonour of a cheque due to insufficient funds in the account of the drawer of the cheque.

This section has become a critical tool for creditors to recover their dues from debtors in India. This article aims to provide an in-depth guide to the 138 NI Act procedure, including its legal provisions, process, and relevant case laws.

Legal Provisions of Section 138 NI Act

Section 138 of the NI Act makes it a criminal offence to issue a cheque that bounces due to insufficient funds or any other reason that renders the cheque dishonoured. The section stipulates that if a cheque is dishonoured, the payee of the cheque can issue a notice to the drawer of the cheque demanding payment within 30 days of the receipt of the notice.

If the drawer fails to make the payment within the stipulated time, the payee can file a complaint before the Magistrate within 30 days of the expiry of the notice period.

The section further provides that the complaint can only be filed in the court within whose local jurisdiction the offence was committed. The offence is deemed to have been committed at the place where the bank that dishonoured the cheque is situated.

The complainant must file the complaint in writing, accompanied by the original dishonoured cheque and the notice served on the drawer. The complainant must also provide evidence to prove that the cheque was issued for a debt or other liability.

The punishment for an offence under section 138 of the NI Act is imprisonment for a term that may extend up to two years, or with a fine that may extend up to twice the amount of the cheque, or with both. The court may also order the drawer to pay compensation to the payee for any loss or damage caused by the dishonour of the cheque.

138 NI Act Procedure: Step-by-Step Process

The 138 NI Act procedure involves several steps that the complainant must follow to file a complaint and recover the dues from the drawer of the cheque. The following is a step-by-step process of the 138 NI Act procedure:

Issuance of Cheque and Dishonour:

The first step in the 138 NI Act procedure is the issuance of a cheque by the drawer in favour of the payee. If the cheque is dishonoured by the bank due to insufficient funds or any other reason, the payee can initiate the legal process under section 138 of the NI Act.

Issuance of Legal Notice:

The payee must issue a legal notice to the drawer of the cheque within 30 days of the receipt of the dishonoured cheque. The notice must demand payment of the amount within 15 days of the receipt of the notice.

Receipt of Notice by Drawer:

The drawer must receive the notice within 30 days of its issuance. If the drawer fails to receive the notice, the payee can prove the service of the notice through an affidavit.

Failure to Make Payment:

If the drawer fails to make the payment within 15 days of the receipt of the notice, the payee can initiate the legal process by filing a complaint before the Magistrate within 30 days of the expiry of the notice period.

Filing of Complaint:

The complainant must file the complaint before the Magistrate within the local jurisdiction of the court where the bank that dishonoured the cheque is situated. The complaint must be filed in writing, accompanied by the original dishonoured cheque and the notice served on the drawer. The complainant must also provide evidence to prove that the cheque was issued for a debt or other liability.

Issue of Summons:

Once the complaint is filed, the Magistrate will issue summons to the drawer, directing him to appear before the court on a specified date. The summons must be served on the drawer either in person or through registered post.

Appearance of Drawer:

On the date of the hearing, the drawer must appear before the court and plead guilty or not guilty. If the drawer pleads guilty, the court may convict him and award the punishment as prescribed under section 138 of the NI Act. If the drawer pleads not guilty, the court will initiate the trial process.

Trial Process:

The trial process involves the examination of witnesses and evidence presented by both the complainant and the accused. The complainant must prove beyond reasonable doubt that the accused issued the cheque for a debt or other liability, and the cheque was dishonoured due to insufficient funds or any other reason.

Judgment:

After hearing the arguments of both the parties, the court will pronounce its judgment. If the court finds the accused guilty, it may convict him and award the punishment as prescribed under section 138 of the NI Act. The court may also order the accused to pay compensation to the complainant for any loss or damage caused by the dishonour of the cheque.

Appeal:

If the accused is not satisfied with the judgment of the Magistrate, he may appeal to the higher courts within 30 days of the pronouncement of the judgment. The appellate court will review the evidence and arguments presented in the lower court and may either uphold, modify or reverse the judgment.

Relevant Case Laws

The interpretation of section 138 of the NI Act has been the subject of several court judgments over the years. The following are some of the relevant case laws related to the 138 NI Act procedure:

Indian Bank Association v. Union of India and Ors.:

In this case, the Supreme Court held that a cheque bounce case can be filed only in a court within whose jurisdiction the bank branch on which the cheque was drawn is situated. The court further held that the territorial jurisdiction of the court cannot be determined by the place where the cheque was delivered or where the cause of action arose.

Kusum Ingots and Alloys Ltd. v. Pennar Peterson Securities Ltd.:

In this case, the Supreme Court held that the notice issued by the payee under section 138 of the NI Act must contain all the necessary details, including the date of receipt of the cheque, the date of presentation of the cheque, and the reason for dishonour of the cheque. The court also held that the notice must be sent by registered post or courier with proof of delivery.

Meters and Instruments Private Limited v. Kanchan Mehta:

In this case, the Supreme Court held that the complainant must prove beyond reasonable doubt that the cheque was issued for a debt or other liability, and the cheque was dishonoured due to insufficient funds or any other reason. The court also held that the presumption under section 139 of the NI Act, which presumes that the cheque was issued for a debt or other liability, can be rebutted by the accused by providing evidence to the contrary.

Frequently Asked Questions

What is a negotiable instrument?

A negotiable instrument is a document that promises to pay a certain amount of money to the bearer or the holder of the document. Examples of negotiable instruments include cheques, promissory notes, and bills of exchange.

What is section 138 of the NI Act?

Section 138 of the NI Act deals with the legal implications of dishonour of a cheque due to insufficient funds in the account of the drawer of the cheque. It makes it a criminal offence to issue a cheque that bounces due to insufficient funds or any other reason that renders the cheque dishonoured.

What is the punishment for an offence under section 138 of the NI Act?

The punishment for an offence under section 138 of the NI Act is imprisonment for a term that may extend up to two years, or with a fine that may extend up to twice the amount of the cheque, or with both. The court may also order the drawer to pay compensation to the payee for any loss or damage caused by the dishonour of the cheque.

What is the process of the 138 NI Act procedure?

The 138 NI Act procedure involves several steps that the complainant must follow to file a complaint and recover the dues from the drawer of the cheque. The steps include the issuance of a legal notice, filing of a complaint before the Magistrate, appearance of the accused, trial process, and judgment.

Can a cheque bounce case be filed anywhere in India?

No, a cheque bounce case can be filed only in a court within whose jurisdiction the bank branch on which the cheque was drawn is situated.

What should be included in the legal notice issued under section 138 of the NI Act?

The legal notice issued under section 138 of the NI Act must contain all the necessary details, including the date of receipt of the cheque, the date of presentation of the cheque, and the reason for dishonour of the cheque. The notice must be sent by registered post or courier with proof of delivery.

Can the accused rebut the presumption under section 139 of the NI Act?

Yes, the accused can rebut the presumption under section 139 of the NI Act, which presumes that the cheque was issued for a debt or other liability, by providing evidence to the contrary.

What is the time limit for filing a complaint under section 138 of the NI Act?

The complaint must be filed before the Magistrate within 30 days of the expiry of the notice period.

What is the time limit for appealing a judgment under section 138 of the NI Act?

The accused can appeal to the higher courts within 30 days of the pronouncement of the judgment.

Can a civil suit be filed along with a criminal complaint under section 138 of the NI Act?

Yes, a civil suit for recovery of dues can be filed along with a criminal complaint under section 138 of the NI Act. However, the civil suit must be filed before the expiry of the limitation period.

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