Section 138 of the Negotiable Instruments Act, 1881 makes the dishonour of a cheque for insufficiency of funds a criminal offence, punishable with imprisonment up to two years or a fine up to twice the cheque amount, or both.
It is one of the most heavily litigated provisions in India, and a striking proportion of complaints are dismissed without the merits ever being reached — because a date was missed.
What Section 138 covers
The offence requires that:
- a cheque was drawn on an account maintained by the drawer;
- it was issued for the discharge, in whole or in part, of a legally enforceable debt or other liability;
- it was presented within its period of validity — three months from the date it bears;
- it was returned unpaid for insufficiency of funds or because it exceeded the arrangement;
- a demand notice was served and the amount was not paid within fifteen days.
A cheque given as security is not outside Section 138 merely because it is called security — what matters is whether a legally enforceable liability existed on the date of presentation.
The four dates
Write these down in this order
1. Date of the bank’s return memo. The cheque must have been presented within three months
of its date.
2. Demand notice — must be sent within thirty days of receiving information
of dishonour from the bank.
3. The drawer then has fifteen days from receipt of the notice to pay. The offence
is only complete when those fifteen days expire without payment.
4. The complaint must be filed within one month of the date on which the cause of
action arose — that is, from the expiry of the fifteen-day period.
A complaint filed before the fifteen days expire is premature and liable to be dismissed. A complaint filed after the one-month window requires an application under the proviso to Section 142(b) explaining sufficient cause, which the court may or may not accept.
Getting the notice right
The demand notice is where most cases are lost. It must:
- be in writing and demand payment of the cheque amount — a notice demanding a larger, composite sum without clearly specifying the cheque amount invites attack;
- identify the cheque, the bank, the date and the reason for return;
- be sent to the drawer’s correct address — ordinarily the address on record with the bank or the last known address;
- be sent within thirty days of the return memo.
Send it by a method that generates proof: registered post with acknowledgment due and speed post, and retain the tracking record. Refusal to accept, or a return marked “not claimed”, is generally treated as good service — deemed service is well established — but you must be able to prove despatch to the right address.
Where to file
Section 142(2) fixes territorial jurisdiction at the place where the payee’s bank branch is situated — the branch where the cheque was delivered for collection through an account. This reversed the earlier position and is generally favourable to the complainant.
Interim compensation
Two provisions substantially altered the balance of these cases:
- Section 143A permits the trial court to direct the drawer to pay interim compensation of up to 20 per cent of the cheque amount, payable within sixty days.
- Section 148 permits an appellate court, where a conviction is appealed, to direct deposit of a minimum of 20 per cent of the fine or compensation awarded.
These provisions mean a drawer can no longer treat an appeal as a costless way of buying years.
Defences that work
Section 139 raises a presumption that the cheque was issued for a legally enforceable debt. The presumption is rebuttable, but the burden sits on the accused, and it is discharged on a preponderance of probabilities rather than beyond reasonable doubt. Defences that have succeeded include:
- No legally enforceable debt — for example, where the underlying loan was itself unenforceable, or the debt was time-barred on the date of the cheque;
- The cheque was lost or misused, supported by a contemporaneous stop-payment instruction and a police complaint predating the presentation;
- Material alteration or filling in of a blank signed cheque beyond the authority given;
- Defective notice — wrong amount, wrong address, or sent out of time;
- Complaint filed out of time without adequate explanation;
- Discharge — the liability was in fact settled, supported by bank records.
Bare denial does not rebut the presumption. Documents do.
Parallel civil recovery
Section 138 is a criminal remedy aimed at the dishonour; it is not a substitute for recovery of the debt. A summary suit under Order XXXVII CPC, or arbitration where the contract provides for it, will often proceed in parallel. Where the sum is significant, running both is usually the right course — the criminal case creates pressure, the civil one creates an enforceable decree.
If you have received a notice
- Diarise the fifteen days immediately. Payment within that window ends the matter.
- Reply on the record, setting out your position. An unanswered notice is used against you later.
- Assemble the underlying transaction documents now — the agreement, the ledger, the transfers. That is where the case is decided.
- Do not ignore summons. Non-appearance leads to warrants and makes every subsequent application harder.
This is general information, not advice on your case
The law summarised above is stated as at the date of publication and applies differently to different facts. Nothing here creates an advocate–client relationship. If the subject affects you, speak to a lawyer about your own position — request a consultation or call +91 83685 88897.