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Section 138 of the negotiable instruments act


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Section 138 of the negotiable instruments act

  1. 1. Section 138 of the Negotiable Instruments Act, 1881 Arun Mahadevan
  2. 2. Basics of the Act <ul><li>The Negotiable Instruments Act 1881, came into force on 1 st March, 1882 </li></ul><ul><li>The said act was enacted to define and to provide the law relating to: </li></ul><ul><ul><li>Promissory Notes </li></ul></ul><ul><ul><li>Bills of Exchange </li></ul></ul><ul><ul><li>Cheques </li></ul></ul>
  3. 3. Section 138 <ul><li>This section defines the dishonor of cheque is an offence. The same also defines the main ingredients which have to be fulfilled to make it, an offence. </li></ul>
  4. 4. 1988 Amendment to Section 138 <ul><li>If a person issues a cheque and it got dishonored the person is said to have done an Criminal offence . </li></ul><ul><li>Whatever be the reason for the dishonor weather for insufficiency of funds or whatever, the same does not matter. </li></ul>
  5. 5. Purpose of Amendment <ul><li>These provisions were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of the instrument. </li></ul><ul><li>The larger objective is to protect the interest of honest people dealing in cheques. </li></ul><ul><li>DRAWER BEWARE </li></ul><ul><ul><li>Because, by the said amendment the DISHONOURED CHEQUE is being TREATED as a CRIMINAL OFFENCE. </li></ul></ul>
  6. 6. Basic Presumption of Section 138 <ul><li>Dishonor of Cheque is an Criminal Offence </li></ul>
  7. 7. Five basic ingredients of section 138 which shall have to be fulfilled for creating an offence for dishonor of a cheque <ul><li>Should be towards legal liability (existing debt) Exclusions: Gift </li></ul><ul><li>Validity period. </li></ul><ul><li>Return memo by the drawer bank. </li></ul><ul><li>Notice to the drawer - within fifteen days (amended to 30 days by the 2002 amendment) </li></ul><ul><li>The drawer of the cheque fails to make the payment of the said amount of money to the payee or to the holder in due course within 30 days of the receipt of the said notice. </li></ul>
  8. 8. Supreme Court also held in K. Bhaskaran Vs. Sankaran Vaidyan Balan <ul><li>It’s not necessary that all the five acts should have been perpetrated at the same locality. It is possible that each of those five acts could be done at five different areas. </li></ul><ul><li>In this context a reference to section 178 (d) of the Cr. P. C. is useful: </li></ul><ul><ul><li>Where the offence consists of several acts done in different local areas, it may be inquired into of tried by a court having jurisdiction over any of such local areas. </li></ul></ul>
  9. 9. Punishment <ul><li>Section 138 provides for the punishment for dishonor of cheque : </li></ul><ul><ul><li>imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both. </li></ul></ul><ul><li>Note: the term of punishment was extended to two years vide 2002 amendment . </li></ul>
  10. 10. FAQ – Section 138 <ul><li>The offence is Bailable. </li></ul><ul><li>Madras High Court Observed: A Non-Bailable warrant shall not be issued under section 138 cases unless it is absolutely necessary. </li></ul>
  11. 11. Contd…… <ul><li>2. Can second notice of demand from drawer gave a new cause to the Drawee? </li></ul><ul><li>The answer is NO. </li></ul><ul><li>the Drawee, of a cheque that is dishonored, has only one life i.e. only one cause for action that he has to use within the prescribed time and file the case. Else, this will become a technical defense that the court will have to uphold. </li></ul><ul><li>It’s a technical defense for the accused. </li></ul>
  12. 12. Contd….. <ul><li>3. Post-Dated Cheque (PDC) is a Valid Instrument? </li></ul><ul><li>The answer is Yes. </li></ul><ul><li>A PDC is a cheque that bears a date that is after the date when the cheque is made out, signed and delivered and is given to the creditor well in advance so that he can present it on such due date. </li></ul>
  13. 13. Contd………… <ul><li>4. Who can take cognizance of the offence under section 138? </li></ul><ul><li>As per the Section 142 (c) of the Act. </li></ul><ul><li>No court inferior to a Metropolitan Magistrate or a Judicial Magistrate can try the offence. </li></ul>
  14. 14. Goaplast V/s Shri Chico Ursula D’ Souza <ul><li>Stop Payment Instructions will not take a case out of the purview of Section 138, it has elaborated on the reasons why this should be so. More importantly, it would follow from the judgments affirming this position that the court will give great credence to the presumption that cheques have been issued in discharge of a debt or liability and will not accept any argument to the contrary. </li></ul>
  15. 15. Important points in dishonor of cheques <ul><li>Cheque should be presented for payment within 6 months from its date or within its validity period. </li></ul><ul><li>within thirty days of the receipt of information by him (Drawee) from the bank regarding the return of the cheque as unpaid, a demand notice should be given in writing by the payee or holder in due course to the drawer of the cheque. </li></ul><ul><li>Within 30 days of receipt of above notice, if the drawer fails to make payment, then the holder or holder in due course has right to file a criminal complaint for the offence within 30 days from the date of cause of action. </li></ul>
  16. 16. Thank You