Section 138, Negotiable Instruments Act — Dishonour of Cheque

What the section does

• Where a cheque drawn to discharge a debt or liability is returned unpaid for insufficiency of funds, or because it exceeds the arrangement with the bank, the drawer commits an offence.
• The offence is complete only if the payee makes a written demand within 30 days of receiving information of the dishonour, and the drawer fails to pay within 15 days of receiving that demand.
• Punishment extends to imprisonment for up to two years, or a fine up to twice the amount of the cheque, or both.
• Since 2018, section 143A allows the trial court to direct interim compensation of up to 20% of the cheque amount before the trial concludes, and section 148 allows an appellate court to require a deposit of at least 20%.

Maximum sentence

2 years, or 2× the cheque amount. Plus interim compensation of up to 20% under s.143A while the trial is still running.

The deadlines

• Within 3 months of its date — The cheque must be presented; after that it is stale and no offence arises.
• Within 30 days of the return memo — The payee must send a written demand — proviso (b).
• 15 days from receipt of the notice — The drawer may pay and end the matter — proviso (c).
• Within 1 month of that expiry — The complaint must be filed — s.142(1)(b).

Where people go wrong

• Missing the 30-day notice window. It runs from the bank return memo, and it is the deadline most complaints fail on.
• Treating a fresh presentation as a reset. A second dishonour does not revive a notice period already missed.
• Filing in the wrong court. Section 142(2) puts jurisdiction where the payee’s collecting bank branch is located.
• Assuming acquittal ends the debt. The section is about the dishonour; the underlying liability survives and remains recoverable civilly.

Common questions

What is the time limit for a cheque bounce notice?

Thirty days from receiving information from the bank that the cheque was dishonoured, under proviso (b) to section 138. The period runs from the bank return memo, and missing it ends the section 138 remedy for that presentation.

What is the punishment under section 138?

Imprisonment for up to two years, or a fine up to twice the amount of the cheque, or both. Since 2018 a court may also order interim compensation of up to 20% of the cheque amount under section 143A before the trial concludes.

Can a section 138 case be compounded?

Yes. Section 147 makes the offence compoundable, so the parties may settle at any stage. Most matters under this section are resolved by compromise rather than run to conviction.

Act on this

• What section 138 gives you, and by when
• Cheque bounce notice template

• What section 138 gives you, and by when
• Cheque bounce notice template

About this summary

A plain-English summary of what this provision requires, not a reproduction of it and not legal advice. Read alongside the bare Act, and take advice on anything turning on your own facts.