Negotiable Instruments Act, 1881
परक्राम्य लिखत अधिनियम, 1881
The law governing cheques, promissory notes and bills of exchange in India
The Negotiable Instruments Act, 1881 governs cheques, promissory notes and bills of exchange. Section 138 makes it a criminal offence to dishonour a cheque for insufficient funds or exceeding arrangement, subject to strict procedural conditions.
Key provisions
Section 138 — Dishonour of cheque
Cheque returned unpaid for insufficient funds is punishable with up to 2 years imprisonment, fine up to twice the cheque amount, or both.
Section 138 proviso — Conditions
Presented within 3 months of issue (or its validity), legal notice within 30 days of return memo, drawer fails to pay within 15 days of notice.
Section 142 — Complaint
Written complaint filed by the payee before the jurisdictional Magistrate within 1 month of expiry of 15-day notice period.
Section 143A — Interim compensation
Court may order the drawer to pay up to 20% of cheque amount as interim compensation during pendency.
Section 148 — Deposit on appeal
Appellate court can direct the drawer to deposit minimum 20% of the fine/compensation before hearing the appeal (Surinder Singh Deswal, 2019).
Cheque bounce — the 30-15-30 timeline
Step 1: Present the cheque within 3 months. Step 2: Bank returns it with a memo (insufficient funds, stop payment for wrongful reasons, etc.). Step 3: Issue a legal notice via registered post/email within 30 days of the memo, demanding payment within 15 days. Step 4: If unpaid, file the complaint before the Magistrate within 1 month of the 15-day period ending.
Can cheque-bounce cases be settled?
Yes. Section 147 makes Section 138 offences compoundable. The Supreme Court in Damodar S. Prabhu v. Sayed Babalal (2010) laid down graded costs to encourage early compounding. Mediation (Meters and Instruments case, 2017) is also actively used.
Scope and applicability
The Negotiable Instruments Act governs specified negotiable instruments. Section 138 creates a cheque-dishonour offence only when each statutory condition is met; a returned cheque is not automatically sufficient.
Key definitions
- Legally enforceable debt or liability
- The cheque must relate to a debt or liability enforceable in law, subject to statutory presumptions and evidence.
- Demand notice
- The written demand required after receipt of bank information about dishonour, within the statutory period.
Practical procedure
- 1Retain the cheque, return memo, account records and underlying transaction documents.
- 2Send a written demand notice within 30 days of receiving bank information of dishonour.
- 3Allow 15 days from receipt of notice for payment.
- 4If payment is not made, file the complaint before the competent court within the statutory one-month period, subject to condonation provisions.
Deadlines and timing
- Present the cheque within its validity period.
- Demand notice: within 30 days of bank dishonour information.
- Drawer payment opportunity: 15 days after receipt of notice.
- Complaint: ordinarily within one month after the cause of action arises.
Practical examples
- A notice sent late can defeat the statutory prosecution even though a civil recovery remedy may still need separate assessment.
- Proof of delivery, the underlying liability and authorised signatory issues can determine the case.
Related guides
Who typically needs this
- Anyone who received a bounced cheque
- Drawers who received a cheque-bounce legal notice
- Small businesses accepting cheques as payment
- Advocates and paralegal teams handling recovery matters
Frequently asked questions
Where can a cheque-bounce case be filed?
Under Section 142(2) (post-2015 amendment), the complaint is filed where the payee's bank branch (that received the dishonoured cheque) is located. This overrode the Dashrath Rathod judgment.
Is imprisonment mandatory in a cheque-bounce case?
No. The court can impose imprisonment up to 2 years and/or fine up to twice the cheque amount. In practice, sentences often combine short imprisonment with fine equal to the cheque amount plus interest.
What if the cheque is issued for a friendly loan without a written agreement?
The drawer's signature on the cheque itself raises a presumption of debt/liability under Sections 118 and 139. The burden is on the drawer to rebut this presumption with a probable defence (Basalingappa v. Mudibasappa, 2019).
Related laws
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