Chapter XVII - Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts
Section 138
Section 138: Dishonour of cheque for insufficiency, etc., of funds in the account
Section 138 addresses dishonour of a cheque issued towards a legally enforceable debt or liability, subject to presentment, written-demand and non-payment conditions.
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Need advice on Section 138?
This article is for general information. Refer to the Negotiable Instruments Act, 1881 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.—For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
When the section applies
Check that the cheque was drawn on an account maintained by the drawer, towards discharge of a legally enforceable debt or other liability, and returned unpaid for a reason engaging section 138. A bank return alone does not establish every ingredient.
The Act’s presentment, written-demand and non-payment conditions must all be examined. Contractual recovery and criminal proceedings involve different questions; preserve the underlying transaction records.
Three different clocks to track
Cheque validity: proviso (a) says six months or the cheque’s validity, whichever is earlier. RBI’s payment direction effective from 1 April 2012 limits payment of the covered cheques to three months from their date. Do not plan a six-month presentment window.
Written demand: the payee or holder in due course gives the drawer written notice demanding payment within 30 days after receiving bank information that the cheque was returned unpaid.
Payment opportunity: the drawer has 15 days from receipt of that notice to pay. The time for instituting a complaint is a separate section 142 question; do not confuse it with the demand-notice period.
Applicability limits and company cheques
A gift, informal expectation or disputed transaction must not automatically be labelled a legally enforceable debt. Analyse the relevant transaction, documents and statutory presumptions.
For a company cheque, identify the company as drawer and separately examine section 141 before naming officers. Signing a company cheque and maintaining the account are distinct facts.
Hypothetical example
Hypothetical: a customer issues a cheque for an unpaid invoice, and the bank returns it for insufficient funds while it remains valid. The supplier retains the invoice, delivery records, cheque and bank memo, gives a properly drafted written demand within the applicable 30-day period, and records when the drawer receives it.
If payment is not made within 15 days of receipt, the supplier obtains advice on complaint timing, jurisdiction and evidence under section 142. This illustration is not a decided case or an assurance of conviction.
Evidence and decision flow
Reconcile the cheque amount with the legally enforceable liability and keep the agreement, invoices, delivery or loan records.
Record cheque date, presentment, bank return information, notice dispatch and notice receipt separately.
Retain the original cheque, officially marked bank memo, copy of demand and delivery evidence.
Have the exact deadline calculation, parties and court jurisdiction checked before filing.
Official source and amendment notes
The statutory explanation’s “debt or other liability” wording is confirmed by the original 1988 Act 66, section 4, printed page 723. India Code’s consolidated PDF contains an apparent “of” transcription error there. The 2002 amendment changed the maximum imprisonment and demand-notice period; this guide uses the amended values. Consolidated Act.
Bank-payment validity is stated separately from the Act’s wording. RBI direction of 4 November 2011.
Practical checklist
Do
- Keep the bank memo and evidence of when the notice was received.
- Record each statutory event in a dated chronology.
Avoid
- Do not treat a bank return memo as proof of all offence ingredients.
- Do not combine presentment, demand and complaint deadlines into one period.
Glossary
- Drawer
- The person drawing the cheque on the account maintained with the banker.
- Legally enforceable liability
- A debt or other liability capable of legal enforcement, as required by the explanation.
- Demand notice
- The written demand for payment given under proviso (b).
Frequently asked questions
Is every bounced cheque automatically a section 138 offence?
No. The legally enforceable liability, relevant dishonour and statutory presentment, demand and non-payment requirements must be established.
Should I wait six months to present the cheque?
No. RBI’s bank-payment validity direction requires attention to the three-month period; the Act itself uses validity if earlier than six months.
When does the 30-day demand period start?
From receipt of information from the bank that the cheque was returned unpaid.
When does the drawer’s 15-day payment period start?
From receipt of the written demand notice, not automatically from the bank-return date.
Is the complaint filing period also 30 days from dishonour?
Do not use that shortcut. Section 142 separately regulates the complaint period and its cause-of-action trigger.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026