Section 138 Of Negotiable Instrument Act : Law On Cheque Dishonour



  1. Introduction 
  2. What Is Section 138 Of NI Act
  3. Prerequisites For Section 138 Of NI Act
  4. Understanding Legally Enforceable Obligations Under Section 138
  5. Importance Of Legal Notices For Dishonored Cheques
  6. What Is Service Of Notice 
  7. Documents Required For Filing A Complaint
  8. What Is Limitation Period 
  9. Legal Responsibilities Of The Drawer For Dishonored Cheques
  10. Conclusion 


Cheque dishonour can be a frustrating and complex issue, often entangled with legal implications. In this article, we delve into the intricacies of cheque dishonour laws, exploring its impact on businesses and individuals alike. From understanding the reasons behind dishonoured cheques to navigating the legal recourse available, we aim to shed light on this crucial aspect of financial transactions.

What Is Section 138 Of NI Act

Section 138 of the Negotiable Instruments Act, 1881, establishes the legal consequences for cheque bounce offences, imposing criminal liability on offenders who dishonoured cheques.

It also deals with the scenario where a person attempts to make a payment from their bank account to fulfil a debt or liability, but the bank returns the payment. This return, known as dishonouring a cheque, can happen due to reasons like insufficient funds or exceeding the agreed payment limit. As per this section, the individual responsible could face imprisonment of up to two years, a fine of twice the cheque amount, or both.

Prerequisites For Section 138 Of NI Act

To initiate legal action under this provision, certain conditions must be fulfilled:

Firstly, the cheque must be issued with the intent to settle a debt or liability, either in full or in part.

Secondly, the cheque must be presented to the bank within six months of its issuance date or before its three-month validity expires, whichever comes first.

Within 30 days of receiving notification from the bank about a cheque being returned unpaid, the payee or holder in due course must issue a written notice. This notice is a necessary step taken by the payee or holder in due course.

As per clause (b) of Section 142 of the Negotiable Instruments Act, 1881, a complaint under Section 138 must be filed within one month after the end of this 15-day period.

Notably, offences under this Act are considered compoundable, meaning the involved parties can reach a compromise and drop the charges if they agree. An essential requirement of this section is that the debt being sought for recovery is legitimate.

If the amount specified on the cheque exceeds the available bank balance, the cheque will be dishonoured. Similarly, if the cheque amount surpasses the agreed withdrawal limit set with the bank, the bank will not honour the cheque.

If a cheque is marked with terms like ‘account closed’, ‘refer to drawer’, or ‘stop payment’, it will not be honoured by the bank according to Section 138 of the Negotiable Instruments Act.

Also Read  How To File A Case Under The Negotiable Instruments Act

In cases where the drawer doesn’t make the payment within the cheque’s validity period and the payee issues a notice demanding payment within 15 days, yet the payment is not made, the liability falls under Section 138 of the NI Act.

Understanding Legally Enforceable Obligations Under Section 138

Section 138 of the Negotiable Instruments Act, 1881 defines “debt or other liability” as legally enforceable obligations. For instance, if a dishonoured cheque is issued for a debt that is time-barred, it doesn’t create liability under this section as the debt isn’t legally recoverable. Similarly, cheques issued as gifts, donations, or for charitable purposes fall outside the scope of this section.

Importance Of Legal Notices For Dishonored Cheques

A legal notice for cheque dishonour is the communication from the payee to the drawer, informing them about the dishonour of the cheque. Conversely, what the bank sends to the payee indicating the dishonour is termed a ‘return memo’. This notice serves as a formal notification to the individual who is accountable for violating the rules and regulations outlined in the principle. It acts as a warning, making the offender aware of their liability.

If there’s a delay in issuing the notice by the relevant authority, the plaintiff might be absolved of their liability concerning the dishonour of the cheque.

A notice of dishonoured cheques is issued by a party seeking to hold a previous party accountable for the dishonour. This notice can be sent by either the holder of the cheque or a party remaining liable for it as per the instrument.

What Is Service Of Notice 

Under Section 27 of the General Clauses Act, 1897, there’s a presumption regarding the service of notice. According to this provision, notice is deemed served only when it’s sent to the correct address via registered post. In cases filed under Section 138 of the Negotiable Instruments Act, 1881, it’s not mandatory for the complainant to specify in the complaint that the accused either evaded service of notice or played a role in its return unserved. However, including such details can potentially strengthen the complainant’s case by indicating the drawer’s culpability to the court.

Service of notice is considered valid if it has been sent to the correct address of the drawer, meeting the requirement specified under Section 138(b) of the N.I. Act, 1881. Emphasising on the mode or manner of issuing the notice to the drawer is unnecessary. The court’s primary concern during case filing is to ensure that the conditions under the given section are applicable and that they fulfil the statutory requirements.

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Once a case is filed, the drawer has the opportunity to defend themselves. They may argue that they were unaware of the notice delivered to them, or that the notice was never tendered, or even that the postman’s notice is false or fake. Alternatively, they might claim that the notice was delivered to the wrong address entirely.

Documents Required For Filing A Complaint 

The sole eligibility requirement for filing a complaint under Section 142 of the Negotiable Instruments Act, 1881, is that the complaint must be submitted by either the payee or the holder in due course. The complainant must be a physical person capable of appearing in court.

To file a complaint under Section 138 of the Negotiable Instruments Act, 1881, certain basic documents are needed. These include a detailed complaint outlining the facts related to the case. Additionally, pre-summoning evidence in the form of an Affidavit is required to support the complaint’s claims.

When filing the complaint, the complainant is also expected to provide a list of witnesses who may be called upon during the legal proceedings. These witnesses can provide testimony or evidence relevant to the case and can support the complainant’s claims.

All necessary documents pertinent to the case must be provided, including a list of these documents. When filing the complaint, the client should also provide a Vakalatnama empowering their counsel to act on their behalf.

Additionally, the complaint should include the notice of demand issued by the payee to the drawer under Section 138, along with the original cheque return memo. These documents are essential components of the complaint submission process.

Additional supporting documents needed for filing the complaint include a board resolution copy for companies authorising the complainant’s advocate to represent the company in legal proceedings. Moreover, an original copy of the dishonoured cheque, not a photocopy or scanned version, must also be submitted.

A duplicate of the legal notice and a duplicate of the return memo must be furnished.

What Is Limitation Period 

After receiving the notice, the drawer has a 15-day period (known as the ‘Notice Period’) to make the payment for the dishonoured cheque. Nevertheless, the court can consider the delay if the complainant presents a valid justification for it.

Following a bounced cheque, the payee notifies the drawer that legal proceedings will commence under the N.I. Act if the payment isn’t settled within 15 days from receiving the notice. If the drawer fails to clear the payment within this timeframe, the payee can proceed with a complaint under Section 138 of the N.I. Act within one month after this 15-day period ends. There’s no fixed format for such notices. Their purpose is solely to inform the drawer of the impending legal action due to payment default. The demand notice should include details like presenting the cheque within its 3-month validity, the nature of the debt, circumstances surrounding it, reasons for dishonouring the cheque, and the specific amount due within 15 days of receiving the notice.

Also Read  How To File A Case Under The Negotiable Instruments Act

After admitting the complaint and taking cognizance of the case, the court will issue a summons to the accused, directing them to appear on a specified date. If the accused fails to appear on the specified date, the court, upon the complainant’s request, may issue a bailable warrant.

If the accused still doesn’t appear even after the issuance of a bailable warrant, the court may proceed to issue a non-bailable warrant against them.

Legal Responsibilities Of The Drawer For Dishonored Cheques

Section 143 of the Negotiable Instruments Act, 1881 grants the court authority to conduct summary trials for cases under Section 138.

According to Section 143, despite the provisions in the Code of Criminal Procedure, 1973, cases under this section will be tried by a First Class Judicial Magistrate or a Metropolitan Magistrate. The procedures outlined in sections 262 to 265 of the said Code are applicable to these trials to the extent possible.

Furthermore, the High Court has the discretion to appoint a Second Class Magistrate for summary trials of offences under this section, with the power to impose fines and imprisonment up to six months.

If a Magistrate determines that the accused deserves a sentence exceeding one year, they may call for witnesses and conduct the trial as per the procedures outlined in the Code of Criminal Procedure, 1973.

Furthermore, Section 143 mandates a continuous trial, ensuring proceedings continue until a verdict is reached by the court, thus promoting justice. However, the court may adjourn the case if valid reasons are recorded in writing.

All trials conducted under this section must be expedited and efficient, aiming to conclude within six months from the suit’s filing date.

The Magistrate has the authority to send copies of summons to the accused or witnesses at their residence or business location using courier services or speed post as directed by the Court.


Section 138 of the Negotiable Instruments Act is a crucial provision that ensures the sanctity of negotiable instruments like cheques. It imposes legal consequences on individuals or entities who issue checks that bounce due to insufficient funds or other reasons. This provision not only protects the interests of payees but also upholds the reliability and credibility of the banking system. In conclusion, Section 138 plays a vital role in maintaining financial discipline and trust within the commercial transactions framework.


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