Negotiable Instruments Act 1881

Negotiable Instruments Act 1881

Provisions of S. 138 to S. 142 under The Negotiable Instruments Act 1881 deal with “Penalties in case of dishonour of cheques for insufficiency of funds in the accounts”.  A summary of these provisions is given below:

 

  • When a cheque deposited by the payee for payment within the validity period of six months, is returned by the banker unpaid on account of insufficient funds, the drawer is deemed to have committed an offence.

 

  • The payee is required to 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.

 

  • An offence is committed if the drawer of such cheque fails to make the payment of the said amount of money to the payee within fifteen days of the receipt of the said notice.

 

  • On failure of the drawer to make payment within 15 days’ notice period,  the  payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act in the relevant court of Metropolitan Magistrate/Judicial Magistrate, as the case may be, having jurisdiction, within one month on the expiry of notice period and can also file a suit for recovery of the cheque amount along with the cost & interest under order XXXVII of Code of Civil Procedure 1908.

 

  • The offence is punishable with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.