When a person issues a cheque to someone and it is returned unpaid by the bank, it is legally classified as cheque dishonor or bounce. Section 138 of the Negotiable Instruments Act, 1881 (NI Act) addresses this issue, stipulating criminal penalties for cheques returned due to insufficient funds.
When a cheque bounces due to insufficient funds, it is punishable under Section 138 of the NI Act. A crucial requirement under this provision is the issuance of a legal notice for cheque bounce. As established in Shakti Travel & Tours v. State of Bihar (2002) 9 SCC 415, a properly served legal notice is essential for a case to be maintainable. Since a Section 138 NI Act notice is fundamental for initiating a court case before the Magistrate, it should be crafted to clearly present all relevant facts. This post covers the key elements related to a legal notice under Section 138 of the NI Act.
The provisions for legal notices related to cheque bounce are outlined in Section 138(b) and (c) of the NI Act. Upon receiving a legal notice for cheque bounce, the drawer is required to repay the debt within 15 days. If this is not done, the payee has the right to take legal action. Consequently, the cause of action begins on the 16th day after the cheque bounce notice is served. The Supreme Court, in Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129, clarified that the cause of action for a cheque bounce notice arises when the drawer fails to make the payment after the notice period expires.
While the law does not mandate a specific format for a cheque bounce notice under the NI Act, certain key elements must be presented clearly and precisely. The names and addresses of the drawer, payee, and the bank is essential. Mentioning the details of the cheque including the details for its return are critical. The final demand for payment of the cheque amount is very important.
Can a notice under Section 138 of the NI Act be sent after 30 days?
If the initial limitation period for cheque bounce has expired but the cheque is still valid for presentation, it can be presented to the bank to obtain a new return memo, thereby renewing the validity for serving the cheque bounce notice. Alternatively, if the notice was not served on time, an application for condonation of delay may be filed to explain the reasons for the delay.
Who can be sued in a cheque bounce case?
The notice and the legal action are directed specifically at the person who issued the cheque. In cases involving companies, where the cheque is not personally signed, the case is initiated against the authorized signatory and the management representing the company. This should be clearly stated in the cheque bounce notice as well.
In conclusion, a well-drafted cheque bounce legal notice can save significant time and effort for someone already facing financial difficulties due to an unresolved debt.
