Section 138 of Negotiable Instruments Act: Complete Legal Guide on Cheque Bounce

Understanding Section 138 of the Negotiable Instruments Act, 1881

Section 138 of the Negotiable Instruments Act, 1881 is one of the most frequently invoked provisions in Indian commercial law. It deals with the dishonour of cheques for insufficiency of funds or if the amount exceeds the arrangement made with the bank. This provision was introduced to enhance the credibility of cheques as a payment instrument and to deter the practice of issuing cheques without adequate funds.

Under the Bharatiya Nyaya Sanhita (BNS), which has replaced the Indian Penal Code, the consequences of cheque dishonour continue to be governed by the NI Act, though related offences of cheating and criminal breach of trust now fall under BNS Sections 318 and 316 respectively (replacing IPC Sections 420 and 406).

Essential Ingredients of a Section 138 Offence

For a complaint under Section 138 to be maintainable, several conditions must be satisfied. The cheque must have been drawn on an account maintained by the drawer. It must have been issued for the discharge, in whole or in part, of any debt or other liability. The cheque must have been returned unpaid by the bank due to insufficiency of funds or because the amount exceeds the arrangement. The cheque must have been presented within its period of validity (three months from the date of issue or the period of its validity, whichever is earlier). The payee or holder in due course must have issued a written demand notice to the drawer within 30 days of receiving information about the dishonour. The drawer must have failed to make payment within 15 days of receiving the demand notice.

Punishment and Compensation

Upon conviction under Section 138, the court may impose imprisonment for a term up to two years, or a fine up to twice the amount of the cheque, or both. Additionally, under Section 143A of the NI Act, the court may order the drawer to pay interim compensation of up to 20% of the cheque amount to the complainant during the pendency of the case.

Filing a Complaint: Procedure and Timeline

The complaint must be filed before the competent Magistrate within one month from the date on which the cause of action arises (i.e., the expiry of the 15-day notice period). Under the Bharatiya Nagarik Suraksha Sanhita (BNSS), which replaces the CrPC, the procedural aspects of filing complaints remain substantially similar, with digital filing options now available in many courts.

Given the technical requirements and strict timelines involved in Section 138 proceedings, legal representation by an advocate experienced in NI Act matters is strongly advisable to ensure that procedural requirements are met and the case is presented effectively.