Section 138 of the Negotiable Instruments Act, 1881 makes it an offence to issue a cheque, for a debt or liability, that is returned unpaid for insufficient funds or because it exceeds the arrangement with the bank. It is one of the most used provisions in Indian courts, and most cases are won or lost on dates.
The timeline
- Present the cheque within its validity. A cheque is valid for three months from its date.
- Send a legal notice within 30 days. The notice demanding payment must be sent within 30 days of receiving information from the bank that the cheque was returned.
- Allow 15 days to pay. The drawer has 15 days from receiving the notice to pay the amount.
- File the complaint within one month. If payment is not made, the complaint must be filed within one month from the end of those 15 days. A court can condone delay for sufficient cause, but a late complaint invites dispute.
Which court
Since the 2015 amendment, a complaint for a cheque delivered for collection through an account is filed in the court within whose jurisdiction the payee’s bank branch, where the account is kept, is situated.
During the case
- Under Section 143A, the court may direct the accused to pay interim compensation of up to twenty per cent of the cheque amount.
- Under Section 148, an appellate court may direct a convicted person who appeals to deposit at least twenty per cent of the fine or compensation.
- The offence is punishable with imprisonment up to two years, a fine up to twice the cheque amount, or both.
Settlement
The offence is compoundable under Section 147, and courts encourage settlement at any stage; the Supreme Court in Meters and Instruments v Kanchan Mehta (2017) noted that the provision is primarily meant to secure payment. Our banking and recovery practice acts for complainants and for those who receive notices.
This article gives general information on the law as it stood when it was written. It is not legal advice; every matter turns on its own facts.