Under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), a cheque drawee may seek relief by asserting valid defenses or taking steps that demonstrate compliance with the law. Here’s how a drawee can approach relief:
1. Understanding Section 138
Section 138 penalizes dishonor of cheques due to insufficient funds or when payment exceeds the arrangement between the drawer and the bank. To be held liable, certain conditions must be met:
- The cheque is presented within its validity period (usually 3 months).
- The payee issues a legal notice within 30 days of dishonor.
- The drawer fails to make payment within 15 days of receiving the notice.
- The complaint is filed within the stipulated timeframe.
2. Grounds for Relief
The drawee may seek relief on the following grounds:
a. No Legal Enforceable Debt
- If the cheque was not issued for the discharge of a legally enforceable debt or liability, the drawee can argue that Section 138 does not apply.
b. Defects in Notice
- If the legal notice served by the payee is defective (e.g., incorrect address, insufficient details), the drawee may challenge the proceedings.
c. Cheque Issued as Security
- If the cheque was issued as a security and not as payment for a debt, this can be used as a defense.
d. Post-Dated Cheque or Without Proper Authority
- If the cheque was post-dated and not yet due, or was issued without proper authorization, the drawee can raise these defenses.
e. Settlement or Payment
- If the amount due was already settled or paid by other means, this can be used as evidence of no liability.
f. Absence of Mens Rea (Intention)
- Section 138 applies only when the dishonor is intentional. Accidental errors or mismanagement in the bank account may weaken the complainant’s case.
3. Procedural Defenses
- Improper Jurisdiction: If the complaint is filed in a court that lacks jurisdiction.
- Delay in Filing Complaint: If the complaint was filed beyond the prescribed timeframe.
- Lapse in Complainant’s Action: If the payee failed to adhere to the notice and timeline requirements under Section 138.
4. Steps for Seeking Relief
- Engage a Competent Lawyer: A lawyer experienced in NI Act cases can draft a suitable defense and challenge the case effectively.
- Reply to Legal Notice: Respond promptly to the payee’s notice with factual and legal defenses.
- File a Petition for Quashing the Complaint: Under Section 482 of the CrPC, the drawee can approach the High Court to quash proceedings if they are frivolous or lack merit.
- Evidence Submission: Gather all necessary evidence, such as proof of payment, correspondence, or agreements, to demonstrate innocence.
5. Seek Out-of-Court Settlement
If possible, resolving the issue amicably with the payee can save time and resources. Courts often encourage settlement in cheque bounce cases.
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