The term "138 NI Act" refers to Section 138 of the Negotiable Instruments Act, 1881, in India. This section deals with the legal consequences of dishonored cheques. Here's a detailed explanation:

Section 138 of the Negotiable Instruments Act, 1881

Overview:

Section 138 of the Negotiable Instruments Act, 1881, makes it a criminal offense if a cheque is dishonored due to insufficient funds or if the amount exceeds the arrangement made by the drawer with the bank.

Key Provisions:

1. Cheque Dishonor: When a cheque drawn by a person is returned by the bank unpaid because of insufficient funds in the account or it exceeds the amount arranged to be paid, the drawer of the cheque is deemed to have committed an offense.

2. Conditions to be Met:

   • The cheque should have been presented within six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
   • The payee or the holder in due course of the cheque must give a written notice to the drawer within 30 days from the date of receiving information from the bank regarding the return of the cheque as unpaid.
   • The drawer fails to make the payment of the cheque amount to the payee or holder in due course within 15 days of receiving the notice.

3. Punishment:

   • Imprisonment for a term which may extend to two years.
   • A fine which may extend to twice the amount of the cheque.
   • Or both.

Legal Procedure:

• Notice: After the cheque is dishonored, the payee must issue a notice to the drawer demanding payment within 30 days of receiving the dishonor information.
• Payment: The drawer has 15 days to make the payment from the date of receipt of the notice.
• Complaint: If the drawer does not make the payment within 15 days, the payee can file a complaint in the court of competent jurisdiction within one month from the date on which the cause of action arises (i.e., after the 15 days’ notice period).

Importance:

Section 138 of the NI Act is crucial in maintaining the sanctity of cheque transactions and ensuring that cheques remain a reliable method of payment in commercial transactions. It serves as a deterrent against issuing cheques without sufficient funds and provides a legal remedy to the payee.

Example Scenario:

• Person A issues a cheque to Person B for Rs. 50,000.
• Person B deposits the cheque, but it gets dishonored due to insufficient funds.
• Person B sends a notice to Person A demanding the payment.
• Person A fails to pay the amount within 15 days.
• Person B can then file a complaint against Person A under Section 138 of the NI Act.

In summary, Section 138 of the Negotiable Instruments Act, 1881, provides a legal framework to address the issue of cheque dishonor, ensuring that cheque transactions are conducted with integrity and reliability.