The introduction of cheques revolutionized the commercial and corporate world. Instead of carrying large sums of cash, people found it convenient and safer to carry a small piece of paper called a cheque. Cheques quickly became an essential part of banking, commerce, industry, and the economy overall.

However, as the use of cheques increased, so did the misuse. Many people started issuing cheques without having enough funds in their bank accounts, with no intention to honor the payment. Before 1988, there was no strong legal provision to control or punish this behavior. Although a dishonoured cheque created a civil liability, recovering the money through civil lawsuits was a slow and difficult process.

Need for Stronger Laws

To address this growing issue, the Indian government amended the Negotiable Instruments Act, 1881. Through the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, and later the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, a criminal remedy was introduced. This ensured faster action against defaulters and helped maintain the credibility of cheques as a mode of payment.

Section 138: The Key Provision

Section 138 of the Negotiable Instruments Act creates a statutory offense when a cheque is dishonoured due to insufficient funds. It is important to note that this offense is slightly different from traditional criminal acts. Usually, in criminal law, there must be a guilty mind or "mens rea." However, under Section 138, the law applies strict liability, meaning the existence of wrongful intent is not necessary to prove the offense.

The main idea is to protect the trust people place in cheques and promote honesty in financial transactions.

When Does Section 138 Apply?

For Section 138 to apply, certain conditions must be met:

1. A person must have drawn a cheque for payment of money to another person.

2. The cheque must be issued for the discharge of a debt or liability.

3. The cheque must be presented to the bank within its validity period (usually 3 months).

4. The cheque must be returned unpaid due to insufficient funds or because it exceeds the arrangement with the bank.

5. The payee must send a written notice to the drawer of the cheque within 30 days from the date of receiving information about the dishonour.

6. The drawer must fail to make the payment within 15 days of receiving the notice.

If these steps are followed and the payment is still not made, the payee can file a criminal complaint against the drawer.

Notice under Section 138

The first legal step after a cheque bounces is sending a demand notice. This notice must:

• Be in writing.

• Clearly state that the cheque was dishonoured.

• Demand the cheque amount to be paid within 15 days.

Sending the notice is crucial. Without it, you cannot move forward with a criminal complaint under Section 138.

Complaint under Section 138

If the drawer does not pay even after receiving the notice, the payee can file a complaint in the court. The complaint should:

• Be filed within one month after the expiry of the 15-day period given in the notice.

• Be filed in the court with proper jurisdiction, usually where the cheque was presented or where the bank is located.

Along with the complaint, the complainant needs to provide:

• Copy of the cheque.

• Bank memo showing cheque return.

• Copy of the legal notice and proof of sending it.

• Any reply received from the drawer.

The court, after examining the documents and initial evidence, may summon the accused for trial.

Penalty under Section 138

If the court finds the accused guilty, the punishment can include:

• Imprisonment for up to two years.

• A fine that may extend to twice the amount of the cheque.

• Or both.

However, in many cases, courts try to promote settlement between the parties before imposing jail time.

Conclusion

The advent of cheques changed how business and banking worked by making transactions easier and safer. But misuse of cheques created serious problems. Section 138 of the Negotiable Instruments Act helped solve these issues by making cheque dishonour a punishable offense.

Today, people trust cheques more because of these legal protections. Still, it is important to understand and follow the legal steps carefully — from sending a notice to filing a complaint — to successfully address cheque dishonour cases.

By making the law simple and quick to enforce, the amendments have strengthened commerce, industry, and the banking system. They ensure that cheques continue to be a reliable and trusted mode of payment in India.