20 % UNDER SECTION 138HOW TO USE NEGOTIABLE INSTRUMENT ACT

Section 138 of the Negotiable Instruments Act, 1881 deals with the dishonor of cheques due to insufficient funds or if the amount exceeds the arrangement made with the bank. If you are referring to “20% under Section 138”, you may be referring to interim compensation under Section 143A of the Act, which allows courts to order the accused to pay up to 20% of the cheque amount as interim compensation to the complainant.

How to Use Section 138 of the Negotiable Instruments Act:

If a cheque bounces due to insufficient funds or any other valid reason under Section 138, the following legal steps can be taken:

1. Issue a Legal Notice (Within 30 Days)

• As per the law, the payee (complainant) must send a written legal notice to the drawer (person who issued the cheque) within 30 days from the date of dishonor.
• The notice should demand payment within 15 days from the date of receipt.

2. Filing a Complaint (After 15 Days)

• If the drawer fails to pay within 15 days of receiving the notice, the payee can file a criminal complaint in the Magistrate Court within 30 days after the notice period expires.

3. Court Proceedings

• The case will be heard in court, and the drawer (accused) will be required to appear.
• The court may order interim compensation under Section 143A of up to 20% of the cheque amount to be paid by the accused.
• If found guilty, the drawer may face imprisonment (up to 2 years) and/or a fine (up to double the cheque amount).

4. Recovery of Compensation (Section 148)

• If the accused files an appeal, the court may order him to deposit at least 20% of the fine or compensation amount before hearing the appeal.

Conclusion

• If you are a payee (complainant), ensure you follow the procedure strictly, including issuing a legal notice within 30 days.
• If you are a drawer (accused) and the cheque bounced due to genuine reasons, you can negotiate a settlement before it reaches court.