FAQs (Frequently Asked Questions):

Q1: What does the Negotiable Instrument Act regulate?

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

Q2: What is the purpose of Section 138 of the Negotiable Instrument Act?

A: Section 138 deals with the dishonor of cheques due to insufficient funds. It aims to address the increasing cases of cheque dishonor, which has significant societal impacts.

Q3: What are the conditions for the applicability of Section 138?

A: 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.

Q4: Does Section 138 cover all types of cheque dishonors?

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

Q5: What defenses can be used against dishonor of cheques?

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

Q6: What are the latest amendments to the Negotiable Instruments Act?

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

Q7: What are the exceptions to dishonor of cheques under Section 138?

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

INTRODUCTION:

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 dishonor due to insufficient funds. With a surge in dishonored 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 dishonoring the cheque, the payee or holder in due course must send a receipt to the drawer.

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

Defenses:

Against dishonored cheques, various defenses can be employed, including:

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

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

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

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 dishonored cheques.

Exceptions:

Exceptions to dishonored cheques under Section 138 include:

• Absence of debt or liability can invalidate the dishonor claim.
• The issuance of the cheque 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 dishonor 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 dishonors resulting from insufficient funds, Section 138 ensures the preservation of trust in financial transactions.

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