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Section 138, NI Act — Scope and Applicability
Section 138 of the Negotiable Instruments Act, 1881 creates a criminal offence where a cheque drawn on an account is returned unpaid by the drawee bank due to insufficient funds or because the amount exceeds the arranged credit limit.
Five Statutory Ingredients
For an offence under Section 138 to be made out, all five ingredients must be satisfied:
- Drawing of a cheque — The accused drew a cheque on an account maintained by him with a bank for payment of any amount of money to another person from that account.
- For discharge of a debt or liability — The cheque was issued for the discharge, in whole or in part, of any debt or other liability.
- Presentation within validity — The cheque was presented to the bank within six months from the date on which it was drawn, or within the period of its validity, whichever is earlier.
- Return unpaid — The cheque was returned by the bank unpaid, either because the credit in the account was insufficient, or because it exceeded the amount arranged to be paid.
- Notice and failure to pay — The payee issued a demand notice, and the drawer failed to make payment within 15 days of receiving it.
Step-by-Step Procedure
Step 1: Issue a Demand Notice (Within 30 Days)
Upon receiving the bank’s return memo, the payee or holder in due course must send a written notice to the drawer within 30 days. The notice must:
- Identify the drawer and payee
- Specify cheque particulars (number, date, amount, bank name)
- State the date of presentation and return, with the reason for return
- Specify the debt or liability for which the cheque was issued
- Demand payment of the exact cheque amount (not inflated with interest or penalties)
- Allow 15 days for payment
The notice may be sent by registered post, speed post, or courier. Electronic notice (email, WhatsApp) may serve as supplementary evidence. Refusal to accept the notice constitutes deemed service.
Step 2: Wait for the 15-Day Payment Period
After notice is received (or deemed received) by the drawer, 15 days must elapse. Payment within this period extinguishes the offence.
Step 3: File a Criminal Complaint (Within 30 Days)
If the drawer fails to pay within 15 days, the payee must file a complaint before the competent Magistrate within one month (30 days) from the date the cause of action arose — that is, from the 16th day after the notice was received.
Jurisdiction
Following the Negotiable Instruments (Amendment) Act, 2015, the complaint must be filed before the court within whose local jurisdiction the payee’s bank branch — where the cheque was deposited for collection — is situated.
Critical Timelines at a Glance
| Stage | Time Limit |
|---|---|
| Present cheque to bank | Within 6 months of date on cheque |
| Send demand notice after dishonour | Within 30 days of receiving bank’s return memo |
| Drawer’s time to pay after receiving notice | 15 days |
| File complaint after non-payment | Within 30 days from the 16th day after notice receipt |
Missing any of these timelines renders the prosecution time-barred.
Punishment
Upon conviction under Section 138, the court may impose:
- Imprisonment for a term which may extend to two years, or
- Fine which may extend to twice the amount of the cheque, or
- Both
The court may additionally direct payment of compensation to the complainant under Section 395 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023.
Defences Available to the Drawer
- The demand notice was not properly served or received
- The cheque was not issued in discharge of a legally enforceable debt or liability
- Payment was made within 15 days of receiving the notice
- The notice demanded an amount exceeding the face value of the cheque
- The cheque was issued as a security or guarantee, not towards a debt
- The cheque was post-dated or conditional
Compoundable Offence
Section 138 is a compoundable offence — the parties may settle and compound at any stage of the proceedings. In Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2018) 1 SCC 560, the Supreme Court held that the provision is compensatory rather than punitive and that courts should facilitate settlement.
Key Judicial Pronouncements
- Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129 — The Supreme Court held that territorial jurisdiction lies where the cheque was dishonoured (drawee bank). This was subsequently overruled by the Negotiable Instruments (Amendment) Act, 2015.
- Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2018) 1 SCC 560 — Cheque bounce proceedings are primarily compensatory in nature.
- Sri Om Sales v. Abhay Kumar (2025) — Courts cannot conduct a “roving enquiry” into the existence of debt at the quashing stage; the question must proceed to trial.
Useful Resources
- Section 138, Negotiable Instruments Act, 1881 — Indian Kanoon
- Section 138, NI Act — India Code
- Section 138 NI Act: Cheque-Bounce Notice, Procedure & Landmark Rulings — SCC Online Blog
Disclaimer: The information provided on this website is for general legal awareness and educational purposes only. It does not constitute legal advice, advertisement, or solicitation. No reader should act or refrain from acting based on this information without seeking professional legal counsel. Advocate Akhil Singh and this website are not liable for any actions taken based on the content herein.