Bouncing of a cheque invites criminal prosecution under section 138 of Negotiable Instruments Act. The Act states that when a person issues a cheque to another person to be encashed. The concerned cheque is issued towards a ‘debt’ payment or liability which is returned unpaid for insufficient of funds, the person who is issuing the cheque without having the required amount is treated as offender as per the Indian Govt. Section 138 presupposes three conditions for prosecution of an offence they are:
- Cheque shall be presented in the bank for the said payment within six months from the date of issue or before its validity expires.
- The cheque holder needs to issue a written notice stating the information of the bounced cheque and demanding for the amount. The notice should be sent within 30 days of the receipt of the bounced cheque information.
- The drawer in spite of the demand notice fails to make the cheque payment within 30 days of the receipt of the notice.
If the above conditions are satisfied the holder can take legal steps against the drawer of the bounced cheque.
The following special points need to be considered:
- Return of unpaid cheque with the advice “account operation jointly, other Director’s signature required”, amounts to dishonor of the cheque within the meaning of sec. 138
- Return of unpaid cheque due to “closure of the account” is also consider as an offence as per the section 138.
- When a cheque is unpaid which is a joint account of two individuals (say X and Y) and X has signed the cheque which bounces. Y has not signed the cheque. Action cannot be taking against Y and it can be done only against X under section.
- If a cheque is returned due to the payment being stopped by the drawer, it is necessary to prove that the drawer had sufficient funds in his account at the time of return of cheque and the stoppage was for some other justifiable reason.
The holder can drop the cheque more than one time. However, there cannot be multiple prosecutions for various times the cheque is returned and the prosecution is only for the last time the cheque bounced. No court shall take cognizance of any offence punishable under section 138 except upon a writing complaint that is made by the payee or the holder in due course of the cheque.
In case of a company or firm, the person who was in charge of the company is liable to be prosecuted. In other words, officers, directors and secretary of the company may be liable.
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