Jurisprudence, Interpretation and General Laws · Law relating to Negotiable Instruments

Dishonour of Cheques and Penalties under Section 138

Updated 11 October 2026 · Fact-checked

Under section 138 of the Negotiable Instruments Act, 1881, a drawer commits an offence if a cheque issued for a legally enforceable debt is returned unpaid for insufficient funds or excess over the arrangement. Three proviso conditions apply: presentment within six months, notice within 30 days, and 15 days to pay. Punishment is up to two years, or fine up to twice the cheque amount, or both.

Understand Dishonour of Cheques and Penalties

A cheque is a promise to pay, backed by money in a bank account. If the bank returns it unpaid, the payee loses more than money. Trust in cheques as a payment tool suffers. Section 138 therefore makes dishonour a criminal offence, in addition to the civil right to recover the debt.

The offence is not complete the moment the cheque bounces. The law gives the drawer a chance to pay first. The payee must present the cheque in time, send a written demand notice, and wait for the drawer to fail to pay. Only then does the offence become punishable and a complaint can be filed.

For the section to apply, the cheque must be drawn on an account maintained by the drawer, for payment to another person, to discharge a debt or liability in whole or in part. The debt or liability must be legally enforceable (Explanation to section 138). A cheque given as a gift, or for a time-barred debt or an illegal purpose, does not attract the section. The return must be because the balance is insufficient, or because the amount exceeds what was arranged with the bank.

The law also helps the payee on proof. Under section 118, until the contrary is proved, it is presumed that every negotiable instrument was made or drawn for consideration, and that the holder is a holder in due course (section 118(g)). So the drawer must rebut these presumptions. The burden does not stay with the complainant on those points.

After the 2015 and 2018 amendments, the law also fixes where the case is tried (section 142(2)) and lets the court order interim compensation (section 143A). Both are favourite exam points.

Key rules to remember

Offence and punishment (s.138): Imprisonment up to 2 years, or fine up to 2 × cheque amount, or both; Applies when a cheque for a legally enforceable debt is returned unpaid for insufficient funds or because it exceeds the arrangement with the bank.
Presentment (s.138 proviso (a)): Present within 6 months from date of drawing or within validity period, whichever is earlier; Cheques can be presented many times within this period. The period is counted from the date on the cheque.
Demand notice (s.138 proviso (b)): Written notice to drawer within 30 days of receiving bank information of return; The 30 days run from when the payee receives information of the return, not from the date of bounce.
Drawer's time to pay (s.138 proviso (c)): Drawer must pay within 15 days of receiving the notice; The offence arises only if the drawer fails to pay within this time.
Complaint (s.142(1)): Written complaint by payee or holder in due course within 1 month from the date cause of action arises under proviso (c); Court may take cognizance later if the complainant shows sufficient cause for the delay. Trial lies before a Metropolitan Magistrate or Judicial Magistrate of the first class.
Interim compensation (s.143A): Up to 20% of the cheque amount; payable within 60 days, extendable by up to 30 days on sufficient cause; Ordered in a summary trial or summons case when the drawer pleads not guilty, and in other cases upon framing of charge. If the drawer is acquitted, the complainant must repay it with interest at the bank rate.
Jurisdiction (s.142(2)): Cheque through an account: court where the payee's collecting branch is. Cheque presented otherwise: court where the drawer's branch is; Section 142A protects transferred cases and sends later complaints against the same drawer to the same court.
Presumptions (s.118): Until the contrary is proved: consideration is presumed, and holder is presumed to be a holder in due course; Burden shifts to the holder where the instrument was obtained by offence, fraud or for unlawful consideration (proviso to s.118(g)).

How to solve Dishonour of Cheques and Penalties questions

Treat every section 138 problem as a checklist. Test each condition in order and stop where one fails. Then give a conclusion.

1Identify the instrument and the debt: is it a cheque drawn on the drawer's own account, to discharge a legally enforceable debt or liability?
2Check the reason for return: insufficient funds or excess over the arranged amount. Other reasons such as a signature mismatch are not covered by the words of the section.
3Check presentment: was the cheque presented within six months of its date or within its validity, whichever is earlier?
4Check the demand notice: was it in writing and given within 30 days of receiving the bank's information of return?
5Check the 15 days: did the drawer fail to pay within 15 days of receiving the notice? If the drawer paid, no offence arises.
6Check the complaint: was it made in writing by the payee or holder in due course within one month from the date the cause of action arose, and before the correct court under section 142?
7Apply presumptions: note that section 118 presumptions favour the complainant, and say what the drawer must prove to rebut them.
8State the conclusion with the punishment, and mention interim compensation under section 143A if the question is about trial.

Quickest way: 6-6-30-15-1 timeline check

When to use it: Use when a problem gives dates and asks whether the drawer can be prosecuted.

Write the numbers 6 months, 30 days, 15 days, 1 month in a row.
Mark each date from the facts: date on cheque, presentment, receipt of bank memo, notice, expiry of 15 days, complaint.
Test each gap against its limit. Presentment: 6 months from cheque date. Notice: 30 days from the bank information. Payment: 15 days from notice receipt. Complaint: 1 month from the day after the 15 days end.
If any gap fails, write that the proviso is not satisfied, so no offence under section 138. Then mention the condonation power for the complaint stage.
Close with the punishment and the section numbers.

Common mistakes in Dishonour of Cheques and Penalties

Counting the 30-day notice period from the date of the cheque or the date of dishonour.
Students mix up the six-month presentment period with the notice period.
Fix: The 30 days run from the receipt of information from the bank about the return. Presentment alone uses the cheque date.
Filing the complaint immediately after the bounce or after the notice.
Students forget the drawer's 15-day window.
Fix: The cause of action arises only when the drawer fails to pay within 15 days of receiving the notice. The one-month complaint period starts from that point.
Applying section 138 to any cheque, including a gift or a time-barred debt.
Students overlook the Explanation on legally enforceable debt.
Fix: Always check that the debt or liability is legally enforceable before applying the section.
Saying the complainant must prove consideration in every case.
Students ignore section 118.
Fix: Until the contrary is proved, consideration is presumed, so the drawer must rebut it. Mention the exception where the instrument was obtained by offence or fraud.
Stating the punishment as imprisonment up to one year or fine equal to the cheque amount.
Older figures are remembered from earlier versions of the law.
Fix: Write imprisonment up to two years, or fine up to twice the cheque amount, or both.
Naming the court by where the drawer lives or where the cheque was issued.
Students assume ordinary civil jurisdiction rules.
Fix: Use section 142(2): the payee's collecting branch for cheques through an account, otherwise the drawer's bank branch.

Worked examples

Example 1

Rohit Sharma of Pune issued a cheque for ₹5,00,000 dated 1 March to Meera Traders, Mumbai, for goods supplied. Meera Traders deposited it on 10 March. On 12 March the bank returned it for insufficient funds, and the payee received the information that day. Notice was sent on 20 March and received by Rohit on 22 March. Rohit did not pay. Meera Traders filed a complaint on 20 April. Examine whether an offence under section 138 is made out.

Show the solution

Provision: section 138 punishes dishonour of a cheque for insufficient funds issued for a legally enforceable debt, if the three proviso conditions are met.
Debt and reason: the cheque was for goods supplied, which is a legally enforceable debt. It was returned for insufficient funds. So the main part of the section applies.
Presentment: the cheque was presented on 10 March, within six months of its date of 1 March. Condition (a) is met.
Notice: the information was received on 12 March and notice was given on 20 March, within 30 days. Condition (b) is met.
Payment period: Rohit received notice on 22 March. The 15 days expired on 6 April. He did not pay, so condition (c) is met and the cause of action arose after 6 April.
Complaint: the complaint on 20 April is within one month from the cause of action under section 142(1)(b). It must be made in writing by the payee, before a Metropolitan Magistrate or Judicial Magistrate of the first class.
Presumption: under section 118, consideration is presumed until Rohit proves otherwise.

Answer: Yes. All conditions of section 138 are satisfied and the complaint is in time. Rohit is liable to imprisonment up to two years, or fine up to ₹10,00,000 (twice the cheque amount), or both, unless he rebuts the presumption of consideration.

Example 2

In a section 138 trial, the drawer pleads not guilty. The cheque amount is ₹8,00,000. The complainant asks for interim compensation. Explain the court's power under section 143A, the maximum amount and the time for payment, and what happens if the drawer is later acquitted.

Show the solution

Provision: section 143A lets the court trying a section 138 offence order the drawer to pay interim compensation to the complainant.
When it can be ordered: in a summary trial or summons case, when the drawer pleads not guilty. In any other case, upon framing of charge.
Maximum: the interim compensation cannot exceed 20% of the cheque amount. 20% of ₹8,00,000 is ₹1,60,000.
Time: it must be paid within 60 days from the date of the order. The court may allow a further period of up to 30 days on sufficient cause shown by the drawer.
Recovery: it can be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973, as the section states.
Acquittal: the court directs the complainant to repay the amount with interest at the bank rate published by the RBI, prevalent at the beginning of the relevant financial year, within 60 days, extendable by up to 30 days on sufficient cause.
Final sentence: any fine or compensation later awarded is reduced by the interim amount paid or recovered.

Answer: The court may order interim compensation up to ₹1,60,000, payable within 60 days (extendable by up to 30 days). If the drawer is acquitted, the complainant must repay it with interest at the bank rate. On conviction, the final fine or compensation is reduced by the amount already paid.

Exam tips

Write the section number with each condition: 138 for the offence and provisos, 142 for complaint and court, 143A for interim compensation, 118 for presumptions.
Present the three proviso conditions as a numbered list. Examiners look for each condition and each time limit.
In problem questions, mark every date and test it against its limit before concluding. A clear conclusion earns marks even on a close fact pattern.
Remember the Explanation: only a legally enforceable debt counts. Raise it whenever the facts mention a gift, a gambling debt or a time-barred debt.
Quote the punishment exactly: up to two years, or fine up to twice the cheque amount, or both.

Practice questions from Law relating to Negotiable Instruments

Dishonour of Cheques 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 Cheques and Penalties: frequently asked questions

What is the time limit to send a notice after a cheque bounces?

The payee must give written notice to the drawer within 30 days of receiving information from the bank that the cheque was returned unpaid. This is condition (b) of the proviso to section 138. Missing it means section 138 does not apply.

How long does the drawer have to pay after the notice?

The drawer has 15 days from receiving the notice. If the drawer pays within this time, no offence arises under section 138. If the drawer fails, the cause of action arises.

What is the penalty for cheque bounce under section 138?

Imprisonment up to two years, or a fine up to twice the amount of the cheque, or both. The court may also order interim compensation of up to 20% of the cheque amount under section 143A during the trial.

Where can the cheque bounce complaint be filed?

Under section 142(2), the court where the payee's bank branch is situated, if the cheque was delivered for collection through an account. If it was presented otherwise, the court where the drawer's bank branch is situated. The court must not be lower than a Metropolitan Magistrate or Judicial Magistrate of the first class.

Is notice of dishonour under section 98 needed for a section 138 case?

Section 98 lists cases where notice of dishonour is not necessary for ordinary dishonour liability, such as countermand of payment by the drawer. The demand notice in proviso (b) to section 138 is a separate statutory requirement for prosecution. For exams, treat the section 138 notice as a mandatory condition.