Cheque Bounce under Section 138 of the NI Act: A Practical Guide

A dishonoured cheque is more than an inconvenience. Under Section 138 of the Negotiable Instruments Act, 1881, it can be a criminal offence — but only if the payee follows a strict sequence of steps. Missing a deadline can weaken an otherwise strong case.

When does Section 138 apply?

The section applies when a cheque issued to discharge a legally enforceable debt or liability is returned unpaid — typically for insufficient funds or because it exceeds the arrangement with the bank. The cheque must have been presented within its period of validity, which is generally three months from its date.

The timeline that matters

1. Bank return memo — the bank returns the cheque with a memo stating the reason for dishonour.
2. Demand notice within 30 days — the payee must send a written notice to the drawer within 30 days of receiving information about the dishonour.
3. 15 days to pay — the drawer has 15 days from receiving the notice to make payment.
4. Complaint within one month — if payment is not made, the complaint should be filed within one month after the 15-day period ends. Courts can condone delay only for sufficient cause.

Where is the complaint filed?

Following the 2015 amendment, a complaint is generally filed in the court with jurisdiction over the bank branch where the payee maintains the account through which the cheque was presented.

What are the consequences?

On conviction, the court may impose imprisonment of up to two years, a fine of up to twice the amount of the cheque, or both. Courts may also direct the drawer to pay interim compensation of up to 20% of the cheque amount while the case is pending.

Settlement is possible

The offence is compoundable, which means the parties can settle at various stages. Many cases are resolved through negotiation or before Lok Adalats once the drawer recognises the strength of the payee’s position.

Practical tips

• Keep the original cheque, the return memo and proof of delivery of the notice.
• Send the notice by a traceable mode, such as registered post or speed post, and keep a copy.
• Make sure the notice states the cheque amount clearly.
• If you are the drawer, do not ignore the notice — take advice immediately.

This article is for general information only and is not legal advice. For advice on your situation, please speak to an advocate.