Section 138 of the Negotiable Instruments Act, 1881 makes the dishonour of a cheque — commonly for insufficient funds — a criminal offence, provided the statutory notice and timeline requirements are followed. These cases involve two distinct audiences: the payee seeking to recover money, and the drawer responding to a complaint, each with different priorities.
Who Needs This Page
This page is relevant whether you have received a bounced cheque and are considering filing a complaint, or you are the drawer of a cheque that has bounced and have received a legal notice. Both sides face a strict statutory timeline, and understanding it is the first step regardless of which side of the matter you are on.
The Statutory Timeline
Section 138 proceedings follow a specific sequence, and missing any step in it can affect the case:
- Cheque dishonour. The bank returns the cheque unpaid, typically for insufficient funds, along with a return memo stating the reason.
- Demand notice — within 30 days. The payee must issue a written notice to the drawer demanding payment, within 30 days of receiving the return memo from the bank.
- Drawer's 15 days to pay. The drawer has 15 days from receipt of the notice to make the payment. If payment is made within this period, no offence arises.
- Complaint — within 1 month. If payment is not made within the 15-day period, the payee must file a criminal complaint within one month of the 15-day period lapsing.
Missing any of these windows can affect whether the complaint is maintainable, so timing is closely tracked from the moment a cheque is returned.
For Payees — Filing a Complaint
If you have received a bounced cheque, the process involves preparing and sending the demand notice within the 30-day window, waiting out the drawer's 15-day payment period, and then filing a complaint before the Magistrate having jurisdiction — generally where the cheque was presented for collection through your bank. The complaint should be supported by the original cheque, the bank's return memo, a copy of the demand notice with proof of service, and any underlying agreement or invoice showing the debt.
Interim Compensation for Payees
Under Section 143A of the Act, the court can direct the drawer to pay interim compensation to the complainant during the pendency of the trial, of up to 20% of the cheque amount. This is intended to provide the payee some relief while the case is still being heard, and is separate from the final compensation or fine that may be ordered if the case is decided in the complainant's favour.
For Drawers — Responding to a Complaint
If you are the drawer facing a Section 138 complaint, the response depends heavily on the facts — whether the cheque was genuinely issued for a debt, whether it was misused, or whether procedural requirements such as proper service of the demand notice were actually met. Common defences examined at trial include the absence of a legally enforceable debt or liability at the time the cheque was issued, and defects in the demand notice or its service. Each of these is assessed against the specific facts and documents of the case rather than assumed to apply generally.
Compounding and Settlement
Section 138 is a compoundable offence, and settlement between the parties is possible at any stage — before the complaint is filed, after it is filed, or even during trial. Where the parties agree on payment terms, the case can be closed once the compromise is recorded by the court, which is often a faster and less adversarial route than proceeding through a full trial for both sides.
Company Cheques and Director Liability
Where the cheque is issued by a company, liability under Section 138 can extend to the company itself and to those individuals who were in charge of and responsible for the conduct of its business at the relevant time. Whether a specific director or officer is liable depends on their documented role and involvement, and this is examined closely where multiple individuals are named in a complaint.
Trial Procedure
Section 138 complaints are generally tried in a summary manner, meaning the procedure is streamlined compared to a regular criminal trial, though the court can convert it to a summons trial if it considers the case warrants a sentence of more than one year's imprisonment. The complainant's evidence, including their own testimony and any witnesses, is recorded first, followed by the drawer's defence evidence, before the court decides the matter.
Civil Recovery as an Alternative or Parallel Route
Separately from the criminal complaint under Section 138, a payee may also have the option of pursuing civil recovery of the amount due, particularly where the underlying transaction is well documented. The criminal and civil routes serve different purposes — the criminal complaint addresses the dishonour of the cheque as an offence, while a civil suit focuses on recovery of the debt itself — and which combination makes sense depends on the amount involved, the strength of documentation, and how quickly recovery is needed.
Documents to Bring to the First Consultation
For payees: the original cheque, bank return memo, proof of the demand notice and its delivery, and any agreement or invoice underlying the debt. For drawers: the notice received, any response already sent, and documents relevant to the underlying transaction or dispute, including anything showing the cheque was not issued for a legally enforceable debt, if that is the position being taken.
Consult Advocate Sourabh Rawat
Advocate Sourabh Rawat represents both payees filing complaints and drawers defending Section 138 matters before the courts in Lucknow. Consultations are available directly with the advocate at both chamber locations.