Cheque Bounce: Understanding Section 138 of the Negotiable Instruments Act and the Quash Compounding Format

The dishonour of a cheque is a common financial issue faced in India, leading to significant legal implications under the Negotiable Instruments Act, 1881. Section 138 of this Act specifically addresses the offence of cheque bounce, providing a mechanism for the aggrieved party to seek redress. This article aims to elucidate the nuances of Section 138, the process of quashing, and the compounding of offences, along with a detailed format for compounding applications.

Understanding Section 138 of the Negotiable Instruments Act

Section 138 of the Negotiable Instruments Act, 1881, states that if a cheque drawn by a person on an account maintained by him with a banker for payment of money to another person is returned by the bank unpaid due to insufficient funds or if it exceeds the amount arranged to be paid by the drawer, the drawer of the cheque shall be deemed to have committed an offence.

Key Elements of Section 138

• Dishonour of Cheque: The cheque must be returned unpaid by the bank.
• Notice Requirement: The payee must issue a notice to the drawer within 30 days of receiving information regarding the dishonour.
• Failure to Make Payment: The drawer must fail to make the payment within 15 days of receiving the notice.

Punishment Under Section 138

The punishment for the offence under Section 138 can be imprisonment for a term which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or both.

Quashing of Cheque Bounce Cases

Quashing of a cheque bounce case refers to the legal process by which a higher court nullifies the proceedings initiated under Section 138 of the Negotiable Instruments Act. This process is often pursued when the parties have settled their disputes amicably or when the complaint is found to be lacking merit.

Grounds for Quashing

• Settlement: If the complainant and the accused have reached a settlement.
• Defective Notice: If the notice issued under Section 138 is not in compliance with legal requirements.
• Non-Existence of Debt: If it is established that no debt existed at the time of issuing the cheque.

Procedure for Quashing

The procedure for quashing involves filing a petition in the High Court under Section 482 of the Code of Criminal Procedure, 1973. The petition must demonstrate sufficient grounds for quashing the complaint.

Compounding of Offences Under Section 138

Compounding refers to the process by which the aggrieved party and the accused arrive at a mutually agreeable resolution, often involving the payment of the cheque amount along with any agreed-upon compensation. The compounding of offences under Section 138 is permissible, as it is a compoundable offence.

Procedure for Compounding

The process for compounding a cheque bounce case involves the following steps:

• Filing of Application: The parties must file a joint application before the court seeking compounding of the offence.
• Payment of Amount: The drawer must pay the cheque amount along with any additional compensation agreed upon.
• Order of the Court: The court will pass an order allowing the compounding of the offence.

Format for Compounding Application

The following is a suggested format for a compounding application under Section 138 of the Negotiable Instruments Act:

Format for Compounding Application

In the Court of [Name of the Court]

Case No.: [Insert Case Number]

In the matter of:

Complainant: [Name of the Complainant]

Vs.

Accused: [Name of the Accused]

Application for Compounding of Offence Under Section 138 of the Negotiable Instruments Act, 1881

To,

The Hon’ble Judge,

[Name of the Court]

Respected Sir/Madam,

We, the undersigned parties, humbly submit this application for the compounding of the offence under Section 138 of the Negotiable Instruments Act, 1881, in the above-mentioned case.

Details of the Parties:

• Complainant: [Name, Address, Contact Details]
• Accused: [Name, Address, Contact Details]

Facts of the Case:

[Briefly state the facts of the case leading to the issuance of the cheque and its dishonour.]

Grounds for Compounding:

[State the grounds for seeking compounding, including any settlement reached between the parties.]

Prayer:

In light of the above, we respectfully pray that this Hon’ble Court may be pleased to allow the compounding of the offence under Section 138 of the Negotiable Instruments Act, 1881, and to quash the proceedings against the accused.

Place: [Insert Place]

Date: [Insert Date]

Yours faithfully,

[Name of the Complainant]

[Signature]

[Name of the Accused]

[Signature]

FAQs

1. What is the time frame for filing a complaint under Section 138?

The complaint must be filed within one month from the expiry of the notice period, which is 15 days from the date of receipt of notice by the drawer.

2. Can a cheque bounce case be settled out of court?

Yes, cheque bounce cases can be settled out of court through a mutual agreement between the parties, which can then be submitted for compounding.

3. What happens if the drawer does not make the payment after receiving the notice?

If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a criminal complaint under Section 138.

4. Is it necessary to issue a notice for cheque bounce cases?

Yes, issuing a notice is mandatory under Section 138 before filing a complaint, as it serves as an opportunity for the drawer to make the payment.

5. What is the maximum punishment for a cheque bounce case?

The maximum punishment under Section 138 can be imprisonment for up to two years, or a fine that may extend to twice the amount of the cheque, or both.

6. Can a cheque bounce case be quashed?

Yes, a cheque bounce case can be quashed if there are valid grounds such as settlement between the parties or defects in the notice.

7. What is the role of the High Court in quashing cheque bounce cases?

The High Court has the authority to quash proceedings under Section 138 if it finds that the complaint is devoid of merit or if the parties have settled the matter.

8. What documents are required for filing a compounding application?

Documents typically required include the original cheque, bank return memo, notice issued, and proof of settlement between the parties.

9. Can the complainant withdraw the case after filing it?

The complainant can withdraw the case, but it is subject to the court's approval and may require a formal application.

10. How long does the compounding process take?

The duration of the compounding process may vary depending on the court's schedule, but it generally takes a few weeks to a couple of months.

Conclusion

The issue of cheque bounce is a significant concern in financial transactions in India. Understanding the legal provisions under Section 138 of the Negotiable Instruments Act is crucial for both payees and drawers. While the law provides a stringent framework for addressing cheque dishonour, avenues such as quashing and compounding offer relief to parties involved. It is advisable to seek legal assistance to navigate these processes effectively and ensure compliance with the law.