Cheque Return: Section 138 of Negotiable Act (Quick Summary)

Cheque Return: Section 138 of Negotiable Act

(Quick Summary)

1. Available for cheque returned. Cheque includes Pay Order and ECS debit mandate
2. Cheque should not be stale i.e. dated over 3 months from the date of its presentation
3. Cheque should be in discharge of existing debt or liability
4. Cheque should have returned for want of funds
5. Cheque returned for “A/c Closed”, “Payment Stopped” and “Refer to Drawer” held as returned for want of funds
6. Demand notice to be given within 30 days from receipt of information of dishonour
7. Requisite is issuance of demand notice within such 30 days and not its receipt in 30 days by the drawer 
8. Advisable to give demand notice only once by a single mode
9. Demand notice may cover more than one returned cheque
10. Notice should demand the drawer to pay within 15 days from its date of receipt
11. Maintainable against all Directors of a company on the company’s cheque return. In such case, averment that such
12. Director was in charge of and responsible for the conduct of the company's business is necessary 
13. Maintainable against all Partners of a partnership firm on the partnership firm’s cheque return
14. Notice should essentially be addressed to the person who has drawn the cheque
15. Better to send notice to all directors/ partners when the cheque returned is drawn by a company/ partnership firm 
16. Notice to directors/ partners should be sent at their residential address
17. Advisable to gather the date (and evidence) of receipt of demand notice by drawer
18. Cause of action arises on the 16th day when drawer doesn't pay within 15 days from receiving the demand notice 
19. Complaint can be filed within 30 days from 16th day from the date of receipt by drawer of the demand notice, if the drawer doesn't pay in the meanwhile
20. If the last day of limitation for filing complaint is a holiday, it may be filed on the next working day
21. Courts can take cognizance even beyond 30 days
22. Cheque bounce complaint based on second notice is maintainable
23. Civil action for recovery of debt (via Court/ DRT/ SARFESI/ Insolvency & Bankruptcy Code) may run simultaneously/ independent of s.138 complaint
24. Maintainable against a Sick company & its Directors
25. Maintainable against the signatories of cheque of a company against which insolvency petition is filed
26. Not maintainable against legal heirs of drawer. Not maintainable against trustees
27. Complaint can be filed at the place where the payee/ holder has account where the return is received
28. Payee, Holder in Due Course or a PoA Holder can file the complaint
29. Dishonour of a post-dated cheque given for repayment of loan installment described as “security” in the loan agreement is covered by s.138
30. The cheque should have been drawn by the Borrower or the Guarantor or any person obligated to pay
31. In case a cheque is drawn by a company, complaint should be filed against the company and its directors and the signatory of the cheque
32. Offence u/s 138 is person specific and the CrPC concept of cognizance of offence not appropriate in s.138 cases.
33. 138 case could be closed by payment of dues under the cheque (amount, cost and interest)
34. On an appeal, court may require the accused/ appellant to deposit up to 20% as interim compensation and further minimum 20% of the fine or compensation awarded by the trial Court 
35. Subsequent filling of unfilled signed cheque is not considered alteration.

This is for general information purpose and not to be taken as advice. Please, Consult a Lawyer before any legal Action.