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Section 138 of the negotiable instrument act 1881

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My friend issued a cheque for the discharge of his liability but it is dishonoured due to insufficient fund. I want to know that when it can be said that offence under section 138 has committed. 

Dishonour of cheque is an offence under Section 138 of the Negotiable Instrument Act. The drawer of the cheque is the principal offender under Section 138.

If such cheque was drawn by a company then it shall be the principal offender. The following procedure is necessary to be followed by the payee (complainant) before filing the complaint under section 138. 

  1. payee presented the cheque for encashment within three months (within the period of its validity) from the date of issue of the cheque;
  2. drawee bank returned the cheque as unpaid;
  3. payee upon receiving the information about dishonour of cheque has sent a demand notice to the drawer for payment of money to which cheque was issued. 
  4. the drawer failed to make the payment within fifteen days from the date of receiving of demand notice. 

The payee must send the demand notice upon the drawer within thirty days from the receiving of information about dishonour of cheque. This is the limitation period granted for the issue of legal notice (demand notice) to the drawer. 

When the offence is said to be committed?

The offence is committed when drawer did not make payment within fifteen days from the date of receiving of the legal notice. If drawer made payment within said period then no offence is made out under section 138 of NI Act. Section 138 provides 15 days time to the drawer to make payment and honour the cheque which he issued for discharge of his liability.  

What is called dishonour of cheque?

Where a cheque is drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person and it is returned by the bank as unpaid, then it is called dishonour. The cheque may be dishonoured on the following reasons: 

  • insufficient fund in the account, or 
  • exceeding the amount arranged to be paid from that account by an agreement made with that bank, or
  • the cheque was stopped by the drawer without any cogent reason, or
  • account has closed by the drawer before the presentation of cheque etc.

When drawer failed to make payment within 15 days of receiving of legal notice then payee must file a complaint under section 142 of the NI Act. He must file a complaint within one month of the date on which the cause of action arises.

When does the cause of action arise?

The cause of arises when the drawer of cheque failed to make payment within 15 days from the date of receiving the legal notice. The Supreme Court in Kamlesh Kumar v. the State of Bihar, (2014) 2 SCC 424 held that 

If the notice (drawer of cheque) fails to make the payment within 15 days from the date of receipt of the notice, the offence can be said to have been committed and in that event, the cause of action for filing the complaint would accrue to the complainant and he is given one month’s time from the date of cause of action to file the complaint.

Hence, an offence under section 138 commits when the drawer of the cheque fails to make payment within 15 days from the date of receiving of legal notice from the payee. Section 138 gives 15 days time to the drawer for making payment so that absolve himself from the offence.

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