Business Laws and Management · Elements of Law relating to Negotiable Instruments

Dishonour of Cheque, Discharge and Section 138 Penalties

Updated 11 October 2026 · Fact-checked

A cheque is dishonoured by non-payment when the drawee bank defaults on payment. Under Section 138, if it bounces for insufficient funds, the drawer commits an offence, but only if the cheque was presented in time, notice was sent within 30 days, and the drawer did not pay within 15 days of notice.

Understand Dishonour, Discharge and Penalties for Cheque Dishonour

A negotiable instrument is dishonoured when it is not accepted or not paid. A bill can be dishonoured by non-acceptance (the drawee refuses to accept it). A promissory note, bill or cheque is dishonoured by non-payment when the maker, acceptor or drawee of the cheque makes default in payment on being duly required to pay (Section 92).

Once an instrument is dishonoured, the holder has a remedy against the drawer. Under Section 30, the drawer of a bill or cheque must compensate the holder if the drawee or acceptor dishonours it, provided due notice of dishonour has been given to or received by the drawer. That is why notice of dishonour matters.

Section 98 lists cases where notice is not needed. Examples: the party entitled to notice has waived it; the drawer has countermanded payment (to charge the drawer); the party charged could not suffer damage for want of notice; the party entitled to notice cannot be found after due search; or the acceptor is also a drawer (to charge the drawers).

Discharge is the end of a party's liability. Under Section 82, a maker, acceptor or indorser is discharged by cancellation (the holder cancels the name with intent to discharge), by release (the holder otherwise discharges the party), or by payment in due course, which discharges all parties if the instrument is payable to bearer or indorsed in blank.

Section 138 adds a criminal remedy. If a cheque given to discharge a legally enforceable debt or liability is returned unpaid because funds are insufficient (or the amount exceeds the arrangement with the bank), the drawer is deemed to have committed an offence. Punishment: imprisonment up to two years, or fine up to twice the cheque amount, or both. The offence arises only when three conditions in the proviso are met.

Key formulas to remember

Section 138 punishment: Imprisonment up to 2 years, or fine up to twice the cheque amount, or both; Applies when a cheque for a legally enforceable debt is returned for insufficient funds or excess over arrangement.
Condition (a): presentment: Present within 6 months of the date of the cheque or within its validity, whichever is earlier; Late presentment means no Section 138 offence.
Condition (b): demand notice: Written notice to drawer within 30 days of receiving information from the bank about return; Given by the payee or holder in due course.
Condition (c): drawer's time to pay: Drawer fails to pay within 15 days of receiving the notice; Only after this failure does the cause of action arise.
Section 142 complaint: Written complaint by payee or holder in due course within 1 month of the cause of action under 138(c); Court may take cognizance later if sufficient cause is shown. Trial only by Metropolitan Magistrate or Judicial Magistrate of the first class.
Section 142(2) jurisdiction: Cheque delivered for collection through an account: court where the payee's account branch is. Otherwise: court where the drawer's drawee-bank branch is; Section 142A covers pending and later complaints against the same drawer before the same court.
Section 140: Drawer's lack of belief that the cheque might bounce is not a defence; Knowledge of the drawer is irrelevant to liability.
Section 82 discharge: Cancellation, release, or payment in due course; Payment in due course discharges all parties only for bearer or blank-indorsed instruments.

How to solve Dishonour, Discharge and Penalties for Cheque Dishonour questions

Use this order for any dishonour or Section 138 question.

1Identify the instrument and the type of dishonour: non-acceptance or non-payment.
2Check if the debt is legally enforceable and the reason for return is insufficient funds or excess over arrangement.
3Test condition (a): presented within 6 months of the date or within validity, whichever is earlier.
4Test condition (b): written notice within 30 days of getting the bank's information.
5Test condition (c): drawer failed to pay within 15 days of receiving the notice.
6Check the complaint: written, by payee or holder in due course, within one month after the 15 days end, before a proper court.
7For discharge questions, match the facts to cancellation, release or payment in due course.
8State the conclusion in one line, with the section.

Quickest way: Three-gate check for Section 138

When to use it: For MCQs that give dates and ask whether an offence is made out or a complaint is in time.

Remember the numbers 6 months, 30 days, 15 days, 1 month.
Gate 1: presented in 6 months or validity. Gate 2: notice within 30 days of bank information. Gate 3: no payment within 15 days of notice.
If any gate fails, pick the option saying no offence.
Then check the reason for return: a reason like account closed or signature mismatch needs care. The text covers insufficient funds or excess over arrangement.
For complaint time, count one month from the day after the 15 days expire.

Common mistakes in Dishonour, Discharge and Penalties for Cheque Dishonour

Counting the 30 days from the date of the cheque.
Students mix the 6-month presentment period with the notice period.
Fix: The 30 days run from the drawer's bank informing the payee that the cheque is returned unpaid.
Saying the offence is complete as soon as the cheque bounces.
The bounce feels like the whole offence.
Fix: All three conditions must be met. The drawer gets 15 days after notice to pay.
Counting the one-month complaint period from the bounce or the notice date.
Students overlook the cause of action rule.
Fix: It runs from the day the cause of action arises under 138(c), which is when the 15-day period ends without payment.
Thinking a drawer can escape by saying he did not expect the cheque to bounce.
Students apply ordinary intention rules.
Fix: Section 140 says this is not a defence.
Believing notice of dishonour is always required.
Section 30 mentions notice, so students treat it as absolute.
Fix: Section 98 lists exceptions, such as waiver or countermand of payment by the drawer.
Saying payment by any party discharges everyone.
Section 82(c) is remembered loosely.
Fix: Payment in due course discharges all parties only if the instrument is payable to bearer or indorsed in blank and the maker, acceptor or indorser pays.

Worked examples

Example 1

Ravi gives Meena a cheque for ₹50,000 dated 1 March for a loan he legally owes. Meena presents it on 10 April. The bank returns it on 11 April for insufficient funds and informs her the same day. She sends a written notice on 20 April. Ravi does not pay within 15 days of receiving it. Is Section 138 attracted?

Show the solution

The debt is a legally enforceable loan, and the reason for return is insufficient funds.
Condition (a): presented on 10 April, within 6 months of 1 March. Satisfied.
Condition (b): notice on 20 April is 9 days after the bank's information, within 30 days. Satisfied.
Condition (c): Ravi failed to pay within 15 days of the notice. Satisfied.
All three conditions are met, so the offence is made out.

Answer: Yes. Ravi is deemed to have committed an offence under Section 138, punishable with imprisonment up to two years, or fine up to twice ₹50,000 (₹1,00,000), or both.

Example 2

A cheque for ₹80,000 is returned for insufficient funds on 5 May. The payee learns of it that day but sends a written demand notice only on 15 June. Can the drawer be prosecuted under Section 138?

Show the solution

Notice must be given within 30 days of receiving the bank's information.
From 5 May, 30 days end on 4 June.
The notice on 15 June is 41 days after, so it is late.
Condition (b) of the proviso is not met.
Section 138 does not apply unless all conditions are satisfied.

Answer: No. The notice was out of time, so no offence under Section 138 arises. The payee may still pursue civil remedies for the debt.

Exam tips

Memorise the four numbers together: 6 months, 30 days, 15 days, one month. Most MCQs test them.
Read dates carefully and find which event starts each period: cheque date, bank information, notice receipt, or end of 15 days.
Do not confuse Section 138 (offence), 142 (complaint and court), 140 (defence not allowed) and 30 (drawer's liability).
In written answers, list the three proviso conditions as numbered points and then apply them to the facts.
No negative marking in Paper 4, so attempt every question.

Practice questions from Elements of Law relating to Negotiable Instruments

Dishonour, Discharge and Penalties for Cheque Dishonour in other exams

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

Dishonour, Discharge and Penalties for Cheque Dishonour: frequently asked questions

What are the essentials of Section 138?

A cheque drawn on the drawer's account for a legally enforceable debt must be returned unpaid for insufficient funds or excess over arrangement. It must be presented within 6 months or its validity, notice must go within 30 days, and the drawer must fail to pay within 15 days of notice.

What is the punishment for cheque dishonour under Section 138?

Imprisonment up to two years, or a fine up to twice the cheque amount, or both. The court imposes it after trial by a Metropolitan Magistrate or Judicial Magistrate of the first class.

Within how much time must a cheque bounce complaint be filed?

Within one month of the date the cause of action arises, which is when the drawer fails to pay within 15 days of the notice. Under Section 142, the court may take it up later if the complainant shows sufficient cause.

Is notice of dishonour always necessary?

No. Section 98 lists exceptions, such as waiver by the party entitled to notice, countermand of payment by the drawer, or when the party cannot be found after due search.

How is a negotiable instrument discharged?

Under Section 82, the maker, acceptor or indorser is discharged by cancellation, release or payment in due course. Payment in due course discharges all parties when the instrument is payable to bearer or indorsed in blank.