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Applicability of Section 138 of the Negotiable Instrument Act

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Negotiable Instrument Act

The Negotiable Instrument Act regulates financial instruments like cheques, bills of exchange, and promissory notes, ensuring smooth financial transactions. This article delves into the importance of Section 138 of the Negotiable Instrument Act, which deals with cheque dishonour due to insufficient funds. With a surge in dishonoured cheque cases affecting society significantly, understanding the provisions of Section 138 is vital.

Applicability of Sec 138

Section 138 holds relevance in various personal and business transactions. For the successful application of Section 138, certain conditions must be met:

  • The cheque must be presented within six months from its validity date.
  • Within thirty days of dishonouring the cheque, the payee or holder, in due course, must send a receipt to the drawer.

Though Section 138 specifically addresses dishonours due to insufficient funds, it doesn’t encompass other issues like signature mismatches. This section plays a crucial role in today’s society, where dishonoured cheque cases are increasing.

Defences

Against dishonoured cheques, various defences can be employed, including:

a) Demonstrating that the payment was made before presenting the cheque serves as a strong defence.

b) Non-receipt of the notice of dishonour within thirty days can also be used as a defence.

c) If the cheque has been altered or changed without the drawer’s consent, it can be a valid defence against dishonour.

Latest Amendments

In 2018, the Negotiable Instruments Act underwent significant amendments introducing two new sections: 143A and 148. These amendments aim to expand the Act’s scope and provide quicker remedies to payees of dishonoured cheques.

Exceptions

Exceptions to dishonoured cheques under Section 138 include:

  • The absence of debt or liability can invalidate the dishonour claim.
  • The cheque issuance for purposes other than discharge can be considered an exception.
  • If the drawer expressed a stop payment instruction, but the bank still issued the cheque, this situation can be an exception to the dishonour claim.

Conclusion

The applicability of Section 138 is a prominent legal process that addresses the increasing fraud involving negotiable instruments, safeguarding society from fraudulent practices. By targeting dishonours resulting from insufficient funds, Section 138 ensures the preservation of trust in financial transactions.

FAQs (Frequently Asked Questions)

1. What does the Negotiable Instrument Act regulate?

The Negotiable Instrument Act regulates negotiable instruments such as cheques, bills of exchange, and promissory notes. These instruments facilitate smooth financial transactions.

2. What is the purpose of Section 138 of the Negotiable Instrument Act?

Section 138 deals with the dishonour of cheques due to insufficient funds. It aims to address the increasing cheque dishonour cases, which have significant societal impacts.

3. What are the conditions for the applicability of Section 138?

The applicability of Section 138 requires the cheque to be presented within six months of its validity period, and the payee must send a receipt to the drawer within thirty days of cheque withdrawal.

4. Does Section 138 cover all types of cheque dishonours?

No, the scope of Section 138 is limited to dishonour due to insufficient funds. It does not apply to factors like signature mismatch.

5. What defences can be used against dishonour of cheques?

Some defences include proving that the payment was made before the cheque presentation, non-receipt of notice within thirty days, or unauthorized alteration of the cheque.

6. What are the latest amendments to the Negotiable Instruments Act?

In 2018, two new sections, 143A and 148, were introduced to enhance the Act’s scope and provide speedy payee remedies.

7. What are the exceptions to the dishonour of cheques under Section 138?

Exceptions include cases where there is no debt or liability, the cheque is issued for a purpose other than discharge, or the drawer issued a stop payment instruction.

G.Durghasree B.A.B.L (Hons)

G Durghasree B.A.B.L (Hons) is a registered trademark attorney with extensive experience as an Advocate for a period of 8 years. She possesses expertise in trademark law, including trademark filing and trademark hearings. Additionally, she is skilled in contract drafting and reviewing, providing legal advice and opinions, particularly in the areas of Company Law, Insolvency and Bankruptcy Code (IBC), and Goods and Service Tax Law (GST). Her experience encompasses both litigation and non-litigation aspects of these laws.