Cheque dishonour
under Section 138.

The statutory framework and underlying liability

The principal legislation is the Negotiable Instruments Act, 1881. Section 138 applies to dishonour of a cheque for insufficiency of funds or where it exceeds the arrangement with the bank, subject to the statutory conditions and exceptions. The cheque must have been drawn on an account maintained by the drawer for payment of money to another person towards discharge, in whole or in part, of a legally enforceable debt or other liability.

The underlying transaction therefore matters. A cheque may be connected to an invoice, loan, supply contract, settlement, advance, security arrangement or another commercial obligation. The parties should identify what amount was due, when it became due, what the cheque represented and whether any payment, adjustment, dispute or settlement occurred. The legal character of a security cheque or a cheque issued subject to a condition must be assessed against the facts and current judicial interpretation.

Sections 118 and 139 contain statutory presumptions in specified circumstances, but the overall case still depends on pleadings, evidence and the applicable legal standards. A presumption should not be treated as a substitute for preserving transaction records.

The sequence of statutory requirements

Section 138 contains a sequence of time-sensitive requirements. The cheque must be presented within its period of validity. If it is returned unpaid for a reason covered by the section, the payee or holder in due course must issue a written demand notice to the drawer within thirty days of receiving information from the bank regarding the return. The notice should identify the cheque, the return and the demand in a manner consistent with the statute.

The drawer is then allowed fifteen days from receipt of the notice to make payment of the cheque amount. If payment is not made within that period, the cause of action for filing a complaint arises in accordance with the Act. Section 142 provides that the complaint is to be made within one month from the date on which the cause of action arises, subject to the court’s power to take cognizance after the prescribed period where sufficient cause is shown.

These statutory periods should be calculated from the actual relevant dates and proof of service. The law provides rules for service and jurisdiction, and facts such as multiple presentation, delivery status, address accuracy, payment, or a disputed notice can affect the analysis. A date chart should be prepared as soon as the bank return information is received.

Documents and evidence to preserve

A reliable record commonly includes the original cheque, bank return memo, deposit details, bank account statements where relevant, invoice or agreement, purchase order, delivery record, loan documentation, ledger account, balance confirmation, emails or messages concerning the debt, and any receipts showing part-payment or adjustment.

Preserve the statutory demand notice, its final signed copy, postal or courier receipt, tracking results, returned envelope where available, email delivery record if used, and proof of the address to which it was sent. Keep a chronological file showing when the bank return information was received, when the notice was dispatched and delivered or returned, and when any response or payment was made.

Electronic records should be retained in their source form where possible. Avoid deleting messages, altering spreadsheets or editing the underlying bank or accounting data. If a dispute arises over electronic material, the evidentiary requirements under the applicable law—including the Bharatiya Sakshya Adhiniyam, 2023 where applicable—should be considered.

Complaint, jurisdiction and trial considerations

Section 142 sets out conditions for taking cognizance of an offence under Section 138 and includes provisions on the person competent to make the complaint and the time for filing. Section 142(2) contains rules for determining the territorial jurisdiction of the court in specified cheque-dishonour situations. The correct court should not be assumed merely from the drawer’s address or the location where the cheque was signed; the statutory language and facts must be examined.

The criminal procedure for proceedings is governed by the applicable procedural law, including the Bharatiya Nagarik Suraksha Sanhita, 2023 for matters to which it applies, together with the special provisions of the Negotiable Instruments Act and current judicial decisions. Transitional and commencement questions may matter depending on the relevant dates.

The eCourts case-status service provides official case information for district courts, and the Delhi High Court website publishes judgments, court rules and e-services. Court information should be checked using the actual case particulars and the official portal.

Civil recovery and Section 138 are distinct

A Section 138 complaint is a statutory criminal proceeding; it is not identical to a civil action to recover a debt. Depending on the contract, amount, limitation, jurisdiction and evidence, a creditor may separately consider a civil recovery route. The Code of Civil Procedure, 1908, the Indian Contract Act, 1872 and, in qualifying cases, the Commercial Courts Act, 2015 may be relevant to a civil or commercial claim.

One route does not automatically replace the other. Parties should consider the relief sought, limitation, costs, court jurisdiction, risk of inconsistent positions, available security and the practical prospects of enforcement. Settlements and compounding should be documented accurately and should comply with the law and any applicable court process.

The Act also addresses compounding in Section 147. Whether and how a matter can be compounded depends on the stage, parties’ position and court directions. No person should assume that a private payment or informal understanding automatically closes pending proceedings.

Common issues requiring careful review

• Whether the cheque was issued towards a legally enforceable debt or other liability.
• Whether it was presented within its validity period and the bank return reason falls within Section 138.
• Whether the written demand notice was issued within the statutory period and to an appropriate address.
• When the notice was received or deemed served and whether payment was made within fifteen days.
• Whether the complaint was filed by an eligible complainant and within the statutory period, or whether delay condonation is sought.
• Whether the complaint is before the court having jurisdiction under Section 142(2).
• Whether the underlying amount, payments, credits or account entries are accurately reflected.

These issues are fact-sensitive. Bank records, delivery evidence and the underlying contract should be compared rather than reviewed in isolation.

A practical chronology for the matter file

Create one table with the cheque number, date, amount, drawer, payee, bank, presentation date, return date, date bank information was received, notice date, dispatch date, delivery or return date, end of the fifteen-day period, complaint date and any payment or settlement event. Attach source documents to each entry.

For a business, align the legal file with finance and accounts records. Confirm that the invoice, ledger, statement of account and internal correspondence reflect the same transaction and identify any credit notes, returns, part-payments or disputed performance. This reduces the risk of taking a position that is inconsistent with the books or commercial record.

Primary and official resources

These primary sources are included for independent verification. Consult the currently applicable text, amendments, rules, notifications and relevant judicial decisions before relying on a statutory provision.