The LAWMAN- Section 138 of The Negotiable Instruments Act, 1881

What would you do when your creditor is standing in front of you and you have an empty pocket or on a general ground, what do a businessman do to its supplier’s payment if he don’t have sufficient funds? The easiest way a debtor can think of making a payment is through a cheque, no matter whether in his bank account, he has sufficient funds or not. Atleast he was getting the goods on time against which he was making payment for. What a general feeling would be, that the debtor made a big fool of his creditor. So here I write this article to make you realize the big repercussions you might have to face for the smartness you performed.

This smart man should have realized that Indian lawmakers are smarter. This case of Dishonor of cheque comes under Section 138 of Negotiable Instruments Act 1881. The lawmakers with time realized that this offence is much higher than what can be called as corporate offence and that people take it lightly. They therefore transformed it into a criminal offence.

According to law, a person who draws such kind of cheque has following punishments-

• Ø  Fine which may extend upto double the amount or
• Ø  Imprisonment whose term may extend upto 2 years or
• Ø  Both

But there are some requirements which need to be fulfilled for this kind of punishments to be exercised or in other words, this law to be applicable. They are:-

That is all about how Law deals with these smart people. But over the time it was realized that people can try to find loopholes even in this.

Like I give you an example:-

Suppose the drawer is informed about this law and still has drawn a cheque without sufficient bank balance.

Now what he does is, he gave a command to his bank to have “Stop Payment” of that particular cheque.

When creditor sues him in a court under this section, he vehemtly refuses, feeling that section doesn’t apply to him as it says the dishonor reason to be “insufficiency of funds”  and here it is “Stop Payment”. The drawer feels he has an easy escape, but sorry to him as it is not that simple.

For this simple reason the judges have given law words “insufficiency of funds” a wider meaning which include- 

• ü  Stop Payment
• ü  Closure of Account (Another smartness, after drawing he might close his account in bank)
• ü  Signature differ (yes this is also punishable under section 138, you might be feeling that this could happen unintentionally as well but then if he is genuine, he must have made payment in those 15 days of grace period!!!!).

This is generally known as mischief rule.

So in future never try such smartness, less you may have to face some real difficulties.

By- Aman Maggu