Business Laws and Ethics · Negotiable Instruments Act, 1881

Dishonour of Cheque under Section 138: Procedure and Rules

Updated 10 October 2026 · Fact-checked

Section 138 makes it an offence when a cheque given for a legally enforceable debt is returned unpaid for insufficient funds or because it exceeds the arranged amount. The offence is complete only if the cheque is presented in time, a written notice is sent within 30 days, and the drawer fails to pay within 15 days.

Understand Dishonour of Cheque for Insufficiency of Funds (Sections 138-142)

A cheque is a bill of exchange drawn on a specified banker and payable on demand (Section 6). Section 19 also says a cheque is payable on demand. If you give someone a cheque to pay a debt and the bank returns it, the payee may lose money. Section 138 gives the payee a criminal remedy.

The section applies when four things are present. The cheque is drawn on an account you maintain with a banker. It is drawn to pay, wholly or partly, a debt or other liability. The bank returns it unpaid because the balance is insufficient, or because the amount exceeds what the bank agreed to pay from that account. And the debt must be legally enforceable (Explanation). A cheque for a time-barred or illegal debt does not attract the section.

Dishonour alone does not make the drawer liable. The proviso gives three conditions that must all be met. First, the cheque is presented within six months from its date, or within its validity period, whichever is earlier. Second, the payee or holder in due course gives a written notice of demand to the drawer within thirty days of receiving information from the bank about the return. Third, the drawer fails to pay within fifteen days of receiving the notice.

If the drawer does not pay, the payee files a complaint. Under Section 142, the court takes cognizance only on a written complaint by the payee or holder in due course, made within one month of the date the cause of action arises (the day the 15-day period ends without payment). The court may take it up later if sufficient cause is shown. Only a Metropolitan Magistrate or Judicial Magistrate of the first class can try the case.

The law helps the complainant. Section 118 presumes, until the contrary is proved, that every negotiable instrument was made for consideration. Section 140 says it is no defence that the drawer had no reason to believe the cheque would be dishonoured. The drawer must therefore bring evidence to rebut the presumption, for example that there was no legally enforceable debt.

Key rules to remember

Punishment (Section 138): Imprisonment up to 2 years, or fine up to twice the cheque amount, or both; The offence arises only if every condition of the proviso is satisfied.
Presentation of cheque: Within 6 months from date of cheque or within its validity, whichever is earlier; Proviso (a). A cheque shown as valid for three months must be presented within that period.
Demand notice: In writing, within 30 days of receiving information from the bank of return as unpaid; Proviso (b). The 30 days run from the payee's receipt of the bank's information, not from the cheque date.
Drawer's payment period: Pay within 15 days of receipt of the notice; Proviso (c). Failure to pay gives the cause of action.
Complaint time limit (Section 142(1)(b)): Within 1 month of the date the cause of action arises under proviso (c); Delay can be condoned if the complainant shows sufficient cause.
Court and jurisdiction (Section 142): Metropolitan Magistrate or Judicial Magistrate of the first class; place by Section 142(2); If delivered for collection through an account: the court where the payee's account branch is. If presented otherwise: where the drawer's account branch of the drawee bank is.
Interim compensation (Section 143A): Not more than 20% of the cheque amount; payable within 60 days (extendable by up to 30 days); Ordered when the drawer pleads not guilty in a summary trial or summons case, or upon framing of charge in other cases.
Appeal deposit (Section 148): Minimum 20% of the fine or compensation awarded by the trial court; Over and above any interim compensation paid under Section 143A.

How to solve Dishonour of Cheque for Insufficiency of Funds (Sections 138-142) questions

Use a fixed checklist for any Section 138 problem. Apply each condition in order and stop where one fails.

1Check the cheque: drawn on the drawer's account with a banker, for payment of money to another person.
2Check the liability: it must be a legally enforceable debt or other liability, in whole or in part.
3Check the reason for return: insufficient funds, or amount exceeds the arrangement with the bank. Other reasons, such as a signature mismatch, are not covered by the wording of the section.
4Test presentation: within six months of the date or the validity period, whichever is earlier.
5Test the notice: written, to the drawer, within 30 days of receiving the bank's information about return.
6Test the drawer's 15 days from receipt of notice. If payment is made, no offence arises.
7Test the complaint: written, by the payee or holder in due course, within one month of the cause of action, before a court of proper jurisdiction under Section 142.
8Conclude with the punishment, and mention presumption (Section 118), Section 140, and interim compensation (Section 143A) where relevant.

Quickest way: Timeline method: 6 months, 30 days, 15 days, 1 month

When to use it: Use it in case-study MCQs and short problems that give dates and ask whether an offence is made out.

Write the four periods in order: presentation 6 months, notice 30 days, payment 15 days, complaint 1 month.
Mark each date given in the question on a line.
Start each count from the right event: bank information for notice, receipt of notice for the 15 days, end of the 15 days for the complaint.
If any period is missed, the offence is not made out, unless the complaint delay is excused for sufficient cause.
Check the debt is enforceable and the reason for return fits the section.

Common mistakes in Dishonour of Cheque for Insufficiency of Funds (Sections 138-142)

Counting the 30-day notice period from the date of the cheque or the date of dishonour.
Students mix the six-month presentation rule with the notice rule.
Fix: The 30 days run from the payee's receipt of information from the bank about the return of the cheque.
Saying the complaint must be filed within 15 days of the notice.
The 15 days is the drawer's time to pay, which gets confused with the complaint time.
Fix: The drawer has 15 days to pay. The complaint is due within one month of the cause of action arising after those 15 days.
Applying Section 138 to every returned cheque.
Students forget the reasons for return named in the section.
Fix: The section covers return for insufficient funds or the amount exceeding the arrangement with the bank. Also check that a legally enforceable debt exists.
Thinking the drawer escapes if he did not know the cheque would bounce.
Students apply a general idea of criminal intent.
Fix: Section 140 says it is no defence that the drawer had no reason to believe the cheque might be dishonoured.
Treating the presumption as final proof.
Section 118 is read as conclusive.
Fix: The presumptions apply only until the contrary is proved. The drawer may rebut them, for example by showing there was no legally enforceable debt.
Naming the wrong court or place for filing.
Students skip Section 142(2).
Fix: Jurisdiction depends on where the payee's collecting account branch is, or, if presented otherwise than through an account, where the drawer's account branch is.

Worked examples

Example 1

Sunita issued a cheque of ₹2,00,000 to Vikram, which was dishonoured. In the summary trial of the Section 138 complaint, Sunita pleads not guilty and the court orders interim compensation. What is the maximum amount, and what happens if Sunita is later acquitted?

Show the solution

Section 143A(1)(a) allows the court to order interim compensation in a summary trial or summons case where the drawer pleads not guilty.
Section 143A(2): the amount cannot exceed 20% of the cheque amount.
Maximum: 20% × ₹2,00,000 = ₹40,000.
Payment time: within 60 days of the order, or within a further period of not more than 30 days if the court allows on sufficient cause.
On acquittal: Section 143A(4) says the court directs the complainant to repay the amount with interest at the bank rate published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year. Repayment is within 60 days, extendable by up to 30 days on sufficient cause.
On conviction: Section 143A(6) reduces the fine or compensation awarded by the amount already paid or recovered as interim compensation.

Answer: The maximum interim compensation is ₹40,000. If Sunita is acquitted, Vikram must repay it with interest at the RBI bank rate within 60 days, extendable by up to 30 days for sufficient cause.

Exam tips

Write the full list of conditions: cheque for a legally enforceable debt, return for insufficient funds, presentation in six months, notice in 30 days, 15 days to pay, complaint in one month. Each carries marks.
In date-based problems, draw a small timeline and compute each deadline. Show the working even if the MCQ only needs one option.
Do not mix up the 15 days (drawer's payment time) with the complaint period (one month).
Mention Sections 118 and 140 when a question asks about defences. Add that the presumption can be rebutted.
Learn the punishment as imprisonment up to two years, fine up to twice the cheque amount, or both. Questions often ask for the fine limit.

Practice questions from Negotiable Instruments Act, 1881

Dishonour of Cheque for Insufficiency of Funds (Sections 138-142) 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 for Insufficiency of Funds (Sections 138-142): frequently asked questions

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

The notice must be in writing and given to the drawer within 30 days of the payee receiving information from the bank that the cheque was returned unpaid. The drawer then has 15 days from receipt of the notice to pay.

By when must the cheque bounce complaint be filed?

Under Section 142, the complaint must be made in writing within one month of the date on which the cause of action arises, that is, when the drawer fails to pay within 15 days of the notice. The court may take a late complaint if the complainant shows sufficient cause.

What is the punishment under Section 138?

The drawer may be punished with imprisonment up to two years, or with a fine up to twice the amount of the cheque, or with both. The court may also order interim compensation under Section 143A, up to 20% of the cheque amount.

Where can a cheque bounce case be filed?

Under Section 142(2), the court is decided by the branch of the bank. If the cheque was delivered for collection through an account, it is where the payee's account branch is. If presented otherwise than through an account, it is where the drawer's branch of the drawee bank is.

Is Section 138 applicable if the cheque was returned for a signature mismatch?

The section as worded covers return for insufficient funds or because the amount exceeds the arrangement with the bank. A return for other reasons is not covered by those words. Always check the reason given in the return memo.