What is the procedure under Section 138 NI Act?

Answer

A:

Here’s a clear step-by-step guide to the procedure under Section 138 of the Negotiable Instruments Act, 1881 for cheque bounce cases:

Step 1: Dishonour of Cheque

• The payee presents the cheque to the bank.

• If the cheque is returned unpaid, the bank issues a Cheque Return Memo with the reason for dishonour (e.g., insufficient funds, signature mismatch).

Step 2: Legal Demand Notice

• The payee must send a written demand notice to the drawer within 30 days of receiving the Cheque Return Memo.

• The notice demands payment of the cheque amount within 15 days.

 Step 3: Waiting Period of 15 Days

• The drawer has 15 days from the date of receiving the notice to make the payment.

• If the drawer pays within this time, the matter ends and no case can be filed.

Step 4: Filing of Complaint in Court

• If the drawer does not pay within 15 days, the payee can file a criminal complaint under Section 138 NI Act.

• This complaint must be filed in the court of a Magistrate within 30 days after the expiry of the 15-day period.

• The complaint should be accompanied by:

  • Copy of the cheque

  • Cheque Return Memo

  • Copy of legal notice sent

  • Proof of service of notice

Step 5: Court Proceedings

• The Magistrate examines the complaint and may issue summons to the drawer.

• If the drawer fails to appear, the court can issue a bailable warrant and later a non-bailable warrant.

Step 6: Trial and Punishment

• Both parties present evidence.

• If found guilty, the drawer may be punished with:

  • Imprisonment up to 2 years, or

  • Fine up to twice the cheque amount, or

  • Both.

• The offence is bailable and compoundable, so settlement between parties is always possible at any stage.

 Summary Timeline

1. Cheque dishonour → Bank issues return memo.

2. Within 30 days → Payee sends legal notice.

3. 15 days → Time given to drawer to pay.

4. If no payment → Complaint filed in Magistrate court within 30 days.

5. Court issues summons, trial begins, punishment or settlement follows.