When you borrow money—whether through a loan or a credit card—timely EMI payments are crucial. But what happens when you miss payments and receive a formal notice? Can this escalate into legal trouble under Section 138 of the Negotiable Instruments (NI) Act? Let’s break it down in simple terms.
Understanding Section 138 of the NI Act
Section 138 of the Negotiable Instruments Act protects creditors by addressing cheque dishonour. If someone issues a cheque and it bounces due to insufficient funds or other reasons, this provision allows the payee to take legal action against the issuer.
Key points about Section 138:
- It applies only to dishonoured cheques.
- Dishonour must be due to reasons like insufficient funds or a closed account.
- Legal procedures must be followed to hold the issuer accountable.
What is a Notice?
A notice, in the context of EMI defaults, is a formal warning from banks or financial institutions to borrowers who have missed payments. It reminds borrowers to pay their dues and outlines potential consequences.
If a notice mentions a dishonoured cheque related to the missed payments, it serves as the first step toward initiating legal proceedings under Section 138. While the notice itself isn’t a lawsuit, ignoring it can lead to one.
Can Non-Payment of EMIs Lead to Legal Action Under Section 138?
The answer depends on the connection between your EMI default and cheque dishonour:
- Post-Dated Cheques (PDCs): If you issued post-dated cheques for EMI payments and one bounces, the lender can take action under Section 138.
- Cheque-Based Settlements: If you provide a cheque as part of a settlement or repayment plan and it bounces, this can also trigger a case under Section 138.
However, if your EMIs are deducted via ECS or NACH and no cheque is involved, Section 138 does not apply. In such cases, banks may pursue other legal actions, like filing a recovery suit or reporting the default to credit bureaus, affecting your credit score.
Procedure Under Section 138
If a cheque issued by you bounces, the lender or payee can initiate legal action through the following steps:
- Demand Notice: A legal notice will be sent within 30 days of the cheque bouncing, demanding payment within 15 days.
- Filing of Complaint: If payment isn’t made within 15 days, the lender can file a criminal complaint under Section 138 in the Magistrate’s Court.
- Court Proceedings: The court summons the issuer. If found guilty, penalties may include:
- A fine up to twice the amount of the dishonoured cheque.
- Imprisonment for up to two years, or both.
What Should a Consumer Do?
If you receive a notice related to EMI default or cheque dishonour, here’s what you can do:
- Don’t Ignore the Notice: Read it carefully to understand the amount due, timelines, and potential consequences.
- Verify the Details: Check the cheque number, amount, and dates for any errors or discrepancies.
- Contact the Lender: Explain your financial situation and negotiate a repayment plan. Most lenders are willing to work out a solution.
- Arrange Funds: Clear the outstanding dues mentioned in the notice within the stipulated timeframe to prevent escalation.
- Consult a Lawyer: If payment isn’t possible or a legal case has already been filed, seek legal advice to understand your options.
- File a Reply: If valid reasons (e.g., fraud or disputes) caused the cheque to bounce, respond to the notice with a lawyer’s help.
Prevention is Better Than Cure
To avoid such situations, follow these tips:
- Ensure sufficient funds in your account to cover EMIs and issued cheques.
- Set reminders for EMI due dates.
- Inform your lender early if facing financial difficulties and explore repayment options.
- Avoid issuing post-dated cheques unless confident of maintaining adequate funds.
Conclusion
A notice related to EMI default or cheque dishonour is a warning you shouldn’t ignore. If missed EMIs lead to a cheque bounce, legal proceedings under Section 138 of the NI Act may follow.
To avoid such situations, stay proactive, maintain open communication with your lender, and clear dues on time. Managing debt responsibly not only protects you from legal trouble but also ensures peace of mind in the long run.
