Fundamentals of Business Laws and Business Communication · Negotiable Instruments Act, 1881

Dishonour of Cheque and Penalties under Section 138

Updated 10 October 2026 · Fact-checked

Under Section 138 of the Negotiable Instruments Act, 1881, a cheque returned unpaid for insufficient funds, or because the amount exceeds the arrangement with the bank, is a criminal offence if it was given for a legal debt, presented within its validity, the payee gave written notice within 30 days of learning of the return, and the drawer fails to pay within 15 days of receiving it. Punishment is up to two years' jail, a fine up to twice the cheque amount, or both.

Understand Dishonour of Cheque and Penalties

A cheque is a promise to pay from money in your bank account. If the bank returns it unpaid because the account has too little money, the cheque is said to be dishonoured. Section 138 makes this a criminal offence, not just a civil dispute. The aim is to keep people trusting cheques.

The offence is not complete the moment the cheque bounces. The law gives the drawer a last chance. First the payee must send a written demand notice within 30 days of receiving information of the return. Then the drawer gets 15 days to pay. Only if the drawer still does not pay is the offence complete, and only then can a complaint be filed.

For Section 138 to apply, these things must be present: the cheque was drawn on an account the drawer maintains with a bank; it was given to another person to pay a legally enforceable debt or other liability, wholly or partly; it was presented to the bank within three months from the date on it (or within its validity period, if that is shorter); it was returned unpaid because the money in the account is insufficient or exceeds the amount arranged with the bank; the payee gave notice within 30 days of getting information of the return; and the drawer failed to pay within 15 days of receiving the notice.

The law presumes that the cheque was issued for a debt or liability (Section 139). The drawer can rebut this by showing evidence. A cheque given as a gift, or for a debt that cannot be legally enforced, does not attract the section.

Section 143 provides for summary trial of the offence by a Magistrate of the First Class or a Metropolitan Magistrate. Section 142 sets the one-month limit for filing the complaint and allows the court to condone delay if there is sufficient cause. The offence is compoundable (Section 147), which means the parties can settle it. If the drawer is a company, persons in charge of its business at the time can also be held responsible.

Key formulas to remember

Penalty under Section 138: Imprisonment up to 2 years, or fine up to 2 × cheque amount, or both; The court can impose either punishment or both. The fine cap is twice the cheque amount.
Presentation period: Within 3 months from the date on the cheque, or its validity period, whichever is earlier; A cheque presented late cannot give rise to a Section 138 offence.
Demand notice: Written notice within 30 days of receiving information from the bank about the return; Under the proviso to Section 138, the notice is sent by the payee or holder in due course to the drawer.
Drawer's payment window: Payment within 15 days of receiving the notice; The 15 days run from the drawer's receipt of the notice, not from the date it was sent.
Time to file complaint: Within 1 month from the date the cause of action arises (after the 15 days end); Section 142 sets this limit. A court may condone delay under Section 142 if the complainant shows sufficient cause.
Interim compensation (Section 143A): Up to 20% of the cheque amount; The court may direct the drawer to pay this to the complainant during the case.
Who can complain: Payee or holder in due course; Under Section 142, the complaint must be in writing, before a Magistrate. Section 143 provides for summary trial by a Magistrate of the First Class or a Metropolitan Magistrate.

How to solve Dishonour of Cheque and Penalties questions

Section 138 questions are timeline and condition checks. Go through the conditions in order and stop at the first one that fails.

1Check the cheque: was it drawn on the drawer's own bank account and given for a legally enforceable debt or liability?
2Check presentation: was it presented within three months of its date or its validity, whichever is earlier?
3Check the reason for return: insufficient funds or exceeding the arrangement. Other reasons need extra care, so read the options closely.
4Check the notice: was a written demand sent within 30 days of the payee learning of the return?
5Check the 15 days: did the drawer fail to pay within 15 days of receiving the notice?
6Check the complaint: was it filed in writing within one month after the 15 days ended?
7If a figure is asked, apply the penalty: up to two years, fine up to twice the amount, or both.
8Choose the option that matches. If any step fails, the answer is that no offence is made out.

Quickest way: The 3-30-15-1 check

When to use it: Use it for any date-based or 'is an offence made out' MCQ.

Remember the chain: 3 months to present, 30 days to give notice, 15 days for the drawer to pay, 1 month to file the complaint.
Underline the dates in the question and test each link in order.
If the cheque was presented late, notice was late, or the drawer paid within 15 days, mark 'no offence'.
For penalty questions, write the cap as 2 years and 2 × cheque amount, and eliminate options with other numbers.
Remember that the notice must be written. Oral demand does not count.

Common mistakes in Dishonour of Cheque and Penalties

Thinking the offence is complete as soon as the cheque bounces
Students link the offence to the bank's return memo alone.
Fix: Remember that the offence completes only when the drawer fails to pay within 15 days of the notice.
Counting the 15 days from the date the notice was sent
The word 'notice' makes students think of the date of the letter.
Fix: The 15 days run from the drawer's receipt of the notice.
Mixing up 30 days and 15 days
Both numbers appear close together in the section.
Fix: Use the rule: 30 days is for the payee to send notice; 15 days is for the drawer to pay.
Treating any bounced cheque as an offence
Students ignore the 'legally enforceable debt' condition.
Fix: Check that the cheque was issued for a debt or liability. A gift cheque or one for an unenforceable debt does not qualify.
Forgetting the three-month presentation limit
Students focus on the notice and complaint dates and skip the first condition.
Fix: Always check the date on the cheque against the date of presentation first.
Stating the fine as 'up to the cheque amount'
Students recall the figure loosely.
Fix: The fine may extend to twice the cheque amount. Imprisonment is up to two years.

Worked examples

Example 1

Ravi gave Meena a cheque dated 1 June 2026 for ₹80,000 to repay a loan. Meena presented it on 15 September 2026. It was returned for insufficient funds, and Meena sent a notice at once. Ravi did not pay. Is Ravi liable under Section 138? (a) Yes, because the cheque bounced for insufficient funds (b) No, because the cheque was presented after three months (c) Yes, but only a fine can be imposed (d) No, because a loan cannot be repaid by cheque

Show the solution

The debt is a loan, which is a legally enforceable liability, so the first condition is met.
Three months from 1 June 2026 ends on 1 September 2026.
Presentation on 15 September 2026 is after that date, so the presentation condition fails.
Without timely presentation, the offence under Section 138 is not made out, whatever happened afterwards.
Option (d) is wrong because a loan can be repaid by cheque. Options (a) and (c) wrongly assume an offence.

Answer: (b) No, because the cheque was presented after three months.

Example 2

A cheque for ₹3,00,000 is dishonoured for insufficient funds, and all Section 138 conditions are met. What is the maximum fine the court can impose? (a) ₹3,00,000 (b) ₹6,00,000 (c) ₹9,00,000 (d) ₹60,000

Show the solution

The fine under Section 138 may extend to twice the cheque amount.
Twice ₹3,00,000 = ₹6,00,000.
₹3,00,000 is only the cheque amount, ₹9,00,000 is three times, and ₹60,000 is 20%, which is the figure for interim compensation, not the fine cap.

Answer: (b) ₹6,00,000

Exam tips

Learn the chain 3 months, 30 days, 15 days, 1 month and test each date in the question in that order.
In penalty questions the key figures are two years' imprisonment and a fine up to twice the cheque amount.
Watch for traps: oral notice, late presentation, payment within 15 days, or a cheque issued as a gift.
Remember who can file the complaint: the payee or holder in due course, in writing, before a Magistrate.
Link this topic with the cheque, crossing and presentment topics, since questions often mix the definitions with Section 138.

Practice questions from Negotiable Instruments Act, 1881

Dishonour of Cheque and Penalties in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Dishonour of Cheque and Penalties: frequently asked questions

What is the time limit for sending a notice after a cheque bounces?

The payee must send a written demand notice within 30 days of receiving information from the bank that the cheque was returned unpaid. A notice sent after that period does not support a Section 138 case.

How many days does the drawer get to pay after the notice?

The drawer has 15 days from receiving the notice to pay the amount. If the drawer pays within this period, no offence under Section 138 is made out.

What is the penalty for cheque dishonour under Section 138?

The punishment is imprisonment up to two years, or a fine up to twice the cheque amount, or both. The court may also order interim compensation of up to 20% of the cheque amount while the case is pending.

How do you file a cheque bounce case in India?

First send a written demand notice within 30 days of the bank's return information and wait 15 days. If the drawer does not pay, file a written complaint before a Magistrate within one month after those 15 days end. Keep the cheque, return memo, notice and proof of delivery.

Can a cheque bounce case be settled?

Yes. The offence is compoundable under Section 147, so the parties can settle it, usually by the drawer paying the amount, and the court can then close the case.