What is the maximum punishment imposed under the Negotiable Instruments Act in case of dishonoured cheques?

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Q. I have filed a complaint under Section 138 of Negotiable Instruments Act against a person. What is the maximum term of punishment that he can get or if fine is imposed, what is the amount?

When a cheque bounces it invites criminal prosecution under Section 138 of the Negotiable Instruments Act 1881. Earlier under the Negotiable Instruments Act 1881 there was no provision to restrain any person who issued the cheque without having sufficient funds in the account and so the act was amended in 1989 and 2002. The amended acts inserted 5 new sections from 143 to 147 which brought changes to the parent Act.

Section 138 main ingredients are:

  • A person must have drawn a cheque to another person for payment of certain amount;
  • Cheque has been presented to bank within a period of 3 months from date it was drawn;
  • Cheque is returned by bank unpaid because of insufficient fund in the account;
  • Holder of cheque makes a demand for payment of the said amount of money by giving notice to drawer and within 30 days period it is unpaid and returned;
  • Drawer fails to make payment to the payee
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Insertion of penal provisions have helped to curb the issue of cheques in a playful manner and now it is more secure in receiving payment through cheques.  In Ms LaxmiDyechem Vs State of Gujarath&ors (27 November 2012) Supreme Court held that criminal proceedings for dishonour of cheque can be initiated because of lack of sufficient amount in the bank account. In the Negotiable Instruments Act 1881 if any person is deemed to have committed an offence under Section 138 then he/she will be punished with imprisonment for a term that can extend up to 2 years or with fine which can be twice the amount of the cheque or both. Act applies even to the E-Cheque which is the image of a normal paper cheque generated written and signed in a secure system. To understand it in a simple way it is an ordinary cheque produced on a computer system instead of signing it in ink use a digital signature. As per Supreme Court there are more than 40 lakh such cheque bounce cases in our country.  Penalty amount depends on each cases differently and the bank also has the right to stop the cheque book facility and close account if such offences are repeated by the offender.

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by Sushma Javare.