By Legum Pacific Editorial ·
Suppose a cheque you accepted for a shop sale or a refund is returned unpaid by the bank. You receive a bank memo that the cheque could not be honoured for lack of funds. The Negotiable Instruments Act sets out steps, time limits and court rules for such a situation.
What does the law say?
Section 138 deals with the dishonour of cheques when a cheque drawn on an account is returned unpaid because the account has insufficient funds or the cheque exceeds the amount arranged to be paid. The section applies where the cheque was drawn for payment to another person for discharge, in whole or in part, of any debt or other liability.
Section 138 states that, in these circumstances, the person shall be deemed to have committed an offence and shall 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. Section 138 contains a proviso with clauses (a), (b) and (c).
The Explanation to Section 138 states that “debt or other liability” means a legally enforceable debt or other liability.
What are the statutory pre-conditions before criminal liability arises?
Section 138’s proviso requires all of the following:
- the cheque must be 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;
- the payee or the holder in due course must make a demand for payment by giving a written notice to the drawer within thirty days of the receipt of information from the bank regarding the return of the cheque as unpaid; and
- the drawer must fail to make payment of the said amount to the payee or holder in due course within fifteen days of the receipt of that written notice.
Who can make a complaint and what defences are excluded?
Section 142 provides that no court shall take cognizance of an offence under Section 138 except upon a written complaint made by the payee or the holder in due course of the cheque. That complaint must be made within one month of the date on which the cause of action arises under clause (c) of Section 138’s proviso. The provision allows the court to take cognizance after that period if the complainant satisfies the court that he had sufficient cause for not making the complaint within time.
Section 139 creates a presumption in favour of the holder: the holder is presumed, unless the contrary is proved, to have received the cheque for the discharge, in whole or in part, of any debt or other liability. Section 140 states that it shall not be a defence that the drawer had no reason to believe, when he issued the cheque, that it might be dishonoured on presentment.
Section 141 addresses offences by companies and makes the company and certain officers liable, subject to the exceptions and explanations contained in that section.
Which court deals with these complaints and where can a case be filed?
Section 142 states that no court inferior to a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try an offence under Section 138. Sub‑section (2) of Section 142 provides that the offence shall be inquired into and tried only by a court within whose local jurisdiction:
- if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course maintains the account is situated; or
- if the cheque is presented for payment by the payee or holder in due course otherwise through an account, the branch of the drawee bank where the drawer maintains the account is situated.
The Act also contains provisions validating transfer of pending cases where jurisdiction rules were amended.
What evidence and interim measures does the law provide?
Section 146 provides that the court shall, on production of the bank’s slip or memo having the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour unless and until such fact is disproved. Section 145 allows the complainant’s evidence to be given by affidavit and read in evidence, with the court able to summon persons who gave affidavit evidence.
Section 143 permits summary trials by a Judicial Magistrate of the first class or a Metropolitan Magistrate and requires that, so far as practicable, the trial be continued from day to day and an endeavour made to conclude the trial within six months from the date of filing of the complaint.
Section 143A authorises the court trying an offence under Section 138 to order the drawer to pay interim compensation to the complainant; it provides that interim compensation shall not exceed twenty per cent of the amount of the cheque and sets time limits for payment and repayment where applicable. Section 147 states that every offence punishable under this Act shall be compoundable. Section 148 gives the Appellate Court power to order deposit of a minimum of twenty per cent of the fine or compensation awarded by the trial court in appeals by the drawer against conviction, subject to the time limits stated in that section.
How long are the key timelines?
- Present the cheque to the bank within six months from its date or within its period of validity, whichever is earlier (Section 138 proviso).
- After the bank informs the payee/holder that the cheque was returned, the written demand must be given to the drawer within thirty days (Section 138 proviso).
- The drawer has fifteen days from receipt of that notice to make payment (Section 138 proviso).
- The complainant must file a written complaint within one month from the date on which the cause of action arises under clause (c) of the proviso to Section 138 (Section 142).
Key points
- Section 138 covers dishonour of cheques for insufficiency of funds or exceeding arranged amount.
- The statute states criminal punishment: imprisonment up to two years, or fine up to twice the amount of the cheque, or both (Section 138).
- The Act requires presentment within six months/validity, written demand within 30 days of bank notice, and failure to pay within 15 days before criminal liability arises (Section 138 proviso).
- Only the payee or holder in due course can file a written complaint, and time limits in Section 142 apply.
- Bank’s dishonour slip is prima facie evidence of dishonour (Section 146); interim compensation and compounding are provided for in Sections 143A and 147.
Laws referred to
- Negotiable Instruments Act, 1881 — sections 138, 139, 140, 141, 142, 142A, 143, 143A, 144, 145, 146, 147, 148
Official sources
This guide states the legal position under the official texts listed above, as at 7 October 2026.