TL;DR: Section 138 of the Negotiable Instruments Act, 1881 makes dishonour of a cheque issued for a legally enforceable debt a criminal offence, punishable by imprisonment up to two years and/or a fine up to twice the cheque amount. The payee must serve a written demand notice within 30 days of the bank’s dishonour memo, give the drawer 15 days to pay, and file a complaint within one month of the cause of action arising if payment is not made.

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What section 138 says: the statutory text

Section 138 of the Negotiable Instruments Act, 1881 reads, in relevant part:

“Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.”

Three conditions (set out in the proviso) must be satisfied before the offence crystallises:

  1. The cheque was presented to the bank within three months of the date on which it was drawn, or within its validity period, whichever is earlier.
  2. The payee or holder in due course made a written demand for payment within 30 days of receiving the bank’s dishonour memo.
  3. The drawer failed to pay within 15 days of receiving that notice.

A note on cheque validity: the Reserve Bank of India, by circular dated 4 November 2011 (effective 1 April 2012), reduced the validity of cheques, demand drafts, pay orders, and banker’s cheques from six months to three months from the date of issue. Section 138 therefore applies only if the cheque was presented within this three-month window.

The five ingredients the prosecution must prove

To secure a conviction under section 138, the complainant must establish each of the following elements:

1. A cheque drawn on a bank account. The instrument must be a cheque as defined under section 6 of the NI Act. Promissory notes, hundis, or other instruments do not fall within section 138.

2. Issued to discharge a legally enforceable debt or liability. The cheque must have been issued for the discharge, in whole or in part, of an existing debt or other legally enforceable liability. Cheques given as gifts, donations, or for purely moral obligations do not attract section 138.

3. Dishonoured by the drawee bank. The bank must return the cheque unpaid. The two recognised grounds are: (a) insufficiency of funds in the account; and (b) the amount exceeds the overdraft or arrangement limit agreed with the bank. Other return reasons, such as “signature mismatch” or “post-dated” or “account closed,” may give rise to the offence depending on the circumstances, but each requires separate analysis.

4. The procedural conditions in the proviso are met. Presentation within three months, notice within 30 days of dishonour, and non-payment within 15 days of the notice.

5. The complainant is the payee or holder in due course. Only the payee or holder in due course has locus to file a complaint under section 142.

Failure to prove any one of these ingredients is fatal to the prosecution.

The demand notice: form, contents, and timing

The demand notice is the backbone of a section 138 prosecution. A defective or belated notice can extinguish the cause of action entirely.

Timing

The notice must be dispatched within 30 days of the date on which the payee receives information from the bank that the cheque has been returned unpaid. The relevant date is the date of receipt of the bank’s dishonour memo (also called the “cheque return memo”), not the date of dishonour itself.

Mode of service

The notice should be sent by registered post with acknowledgement due or by speed post. Courts have also accepted notices sent by courier, though registered post remains the safest mode. If the drawer refuses to accept the notice or is absent, a deemed-service argument can still be made, provided proper dispatch is proved.

Essential contents

A legally sound demand notice must contain:

  • Full name and address of the drawer.
  • Full name and address of the payee / complainant.
  • Cheque details: number, date, amount, and name of the drawee bank and branch.
  • Date of presentation of the cheque to the bank.
  • Date of dishonour and the reason stated by the bank.
  • A clear demand that the drawer pay the cheque amount within 15 days of receipt of the notice.
  • A statement that failure to pay within 15 days will result in a criminal complaint under section 138.

You may also state in the notice that you reserve the right to claim interest and costs, but the 15-day ultimatum must be tied to the face value of the cheque itself.

The 15-day payment window

Once the drawer receives the notice, they have 15 days to make payment. If the drawer pays within this window, no offence is committed under section 138. The cause of action arises the day after the 15-day period expires without payment.

Filing the complaint: section 142 and jurisdiction

Who may file

Section 142 restricts cognizance of a section 138 offence to a complaint in writing made by the payee or the holder in due course. No third party may file. The police have no role; this is a complainant-driven private prosecution.

Limitation period

The complaint must be filed within one month of the date on which the cause of action arises (i.e., the day after the 15-day payment window expires). The court may condone the delay if the complainant shows sufficient cause under section 142(b).

Court level

No court inferior to a Metropolitan Magistrate (in metropolitan areas) or a Judicial Magistrate of the First Class (elsewhere) shall try an offence under section 138.

Territorial jurisdiction: from Dashrath Rupsingh Rathod to the 2015 amendment

Jurisdiction was a contested battleground for years. The law went through three phases:

Phase 1 (pre-2014): conflicting High Court views. Different High Courts took different positions, variously holding that the court with jurisdiction was the one where the cheque was drawn, where it was presented, or where the demand notice was issued.

Phase 2: Dashrath Rupsingh Rathod v State of Maharashtra (2014). A three-judge bench of the Supreme Court settled the controversy by holding that complaints under section 138 could only be filed at the court within whose local jurisdiction the drawee bank is situated, meaning the bank on which the cheque was drawn and that returned it unpaid. This shifted jurisdiction away from the payee’s location and caused significant inconvenience, because payees often had to travel to the drawer’s city to file complaints.

Phase 3: the Negotiable Instruments (Amendment) Act, 2015. Parliament responded swiftly by inserting section 142(2) into the NI Act. Under the amended provision, the offence shall be inquired into and tried only by a court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains the account is situated (i.e., the payee’s bank branch where the cheque was deposited for collection). The 2015 amendment also directed that all pending cases that had been filed at the wrong court be transferred to the court of competent jurisdiction as per the new rule. The payee’s bank branch is therefore now the anchor for jurisdiction in all fresh complaints.

Presumptions and the burden on the drawer

Section 139: the statutory presumption

Once the complainant proves that:

  • the cheque was executed (signed) by the accused, and
  • the cheque was issued from the accused’s bank account,

section 139 raises a mandatory presumption that the cheque was issued for the discharge of a legally enforceable debt or liability. The court must raise this presumption; it is not discretionary.

The presumption is rebuttable. The accused can rebut it by adducing evidence that raises, on a preponderance of probabilities, a doubt as to whether the cheque was issued for a legally enforceable debt. The accused does not have to prove the defence beyond a reasonable doubt; the standard is the preponderance of probabilities.

Importantly, the Supreme Court has clarified (in multiple decisions including in 2022 and in Renuka v State of Maharashtra & Anr, 2026 INSC 327) that the presumption under section 139 cannot be dislodged at the pre-trial or process-issuance stage. The accused’s defence must be tested during trial through cross-examination and evidence; a bare denial at the outset will not suffice to quash a complaint.

Practical consequence

The section 139 presumption means that once the complainant proves execution and presentation of the cheque, the prosecution’s basic case is largely complete. The burden then shifts to the accused to rebut.

Interim relief and appellate deposit: sections 143A and 148

Section 143A: interim compensation during trial

Inserted by the Negotiable Instruments (Amendment) Act, 2018, section 143A empowers the trial court to direct the drawer to pay interim compensation not exceeding 20 percent of the cheque amount during the pendency of the trial.

Key points:

  • The direction can be made only after the accused enters a plea of “not guilty.” It cannot be ordered before that stage.
  • The compensation must be paid within 60 days of the court’s order, extendable by up to 30 days for sufficient cause.
  • The power is directory, not mandatory. The Supreme Court has held that reading “may” in section 143A as “shall” would be unjust; the trial court has discretion and must consider factors such as the prima facie nature of the accused’s defence before ordering interim compensation.
  • Section 143A operates prospectively, meaning it applies only to offences committed after the provision came into force (inserted with effect from 1 September 2018).
  • If the accused is ultimately acquitted, the complainant must refund the interim compensation with interest at the rate fixed by the Reserve Bank of India.

Section 148: deposit pending appeal

When a convicted drawer appeals the conviction to an appellate court (Sessions Court or High Court), section 148 empowers the appellate court to direct the appellant to deposit a sum not less than 20 percent of the fine or compensation awarded by the trial court, as a condition for entertaining the appeal.

Key points:

  • Again, the word “may” gives the appellate court discretion. Courts have held that the 20 percent figure is a floor, not an absolute mandate, and the condition can be relaxed in exceptional circumstances where imposing it would effectively deprive the accused of the right of appeal.
  • The deposit must be made within 60 days, extendable by 30 days.
  • Non-payment does not by itself foreclose the right of appeal, but it may lead to vacation of any suspension of sentence that was granted.
  • Section 148 applies to appeals filed after its insertion in 2018.

Defences available to the drawer

The section 139 presumption is strong but rebuttable. The following defences, if substantiated by evidence, can succeed:

1. No legally enforceable debt. The cheque was given as a gift, towards a time-barred debt, or for a transaction that is void or unenforceable in law (for example, an illegal wager or gambling debt). A bare assertion will not suffice; the accused must produce evidence.

2. Cheque issued as a security, not for an existing debt. Courts have long debated this defence. The law is nuanced: a cheque given as a “security deposit” at the start of a transaction may not attract section 138 if the liability had not crystallised. However, if the liability later crystallises and the cheque is presented to discharge it, the defence may fail. Each case turns on its facts and the timing of the liability.

3. Payment already made. If the drawer can show documentary proof that the debt was discharged before or within the 15-day window after the demand notice, the offence is not made out.

4. Defective or belated demand notice. If the notice was not dispatched within 30 days of the dishonour memo, or was not in writing, or omitted to demand payment within 15 days, the complaint is liable to be dismissed.

5. Cheque presented outside the validity period. If the cheque was presented more than three months after its date, no offence arises.

6. Stale cause of action / limitation. If the complaint was not filed within one month of the cause of action (the expiry of the 15-day notice period), it may be time-barred unless delay is condoned.

7. Complainant has no locus (not the payee or holder in due course). A third party who has no entitlement under the NI Act cannot file the complaint.

8. Material alteration or forgery. A cheque that has been materially altered without the drawer’s consent, or that bears a forged signature, does not attract liability under section 138.

9. Account closed before the cheque was presented. If the account was closed long before the cheque was issued, the drawer may argue there was never any representation of funds. However, courts examine the drawer’s intent at the time of issue.

10. Coercion or fraud. If the cheque was obtained by coercion or fraud, the drawer can resist liability, but this must be proved with credible evidence.

Compounding and settlement under section 147

Section 147 of the NI Act makes offences under Chapter XVII (which includes section 138) compoundable at any stage of the proceedings, including after conviction, provided both parties consent. This makes section 138 cases amenable to settlement at the magistrate level, in sessions court, in the High Court, and even before the Supreme Court.

In September 2025, the Supreme Court in Sanjabij Tari v Kishore S. Borcar issued comprehensive directions addressing the massive backlog of section 138 cases (the court noted pendency in Delhi alone exceeded 6.5 lakh cases, constituting nearly 50 percent of trial court dockets). The directions included a graded cost structure for compounding:

  • Compounding before defence evidence is recorded: no additional cost.
  • Compounding after defence evidence but before judgment: additional 5 percent of the cheque amount.
  • Compounding before a sessions court or High Court in revision or appeal: 7.5 percent.
  • Compounding before the Supreme Court: 10 percent.

The directions also mandated that summons contain information about the option to compound, that QR-code or UPI-based payment links be created by district courts to facilitate settlement, and that the service of summons be done through electronic means (email, WhatsApp, SMS) in addition to physical modes.

Beyond settlement, the Civil Court route (a summary suit for recovery under Order XXXVII of the Code of Civil Procedure, 1908) is available in parallel, as section 138 proceedings do not bar a civil suit.

Valid and invalid section 138 complaints: a quick-reference table

The table below captures common scenarios and whether the section 138 complaint would lie in each.

ScenarioComplaint valid?
Cheque presented within 3 months of its date; dishonoured for insufficient funds; notice sent within 30 days; drawer did not pay within 15 days; complaint filed within 1 month of cause of action✓ All conditions met
Cheque presented 4 months after its date (beyond validity)✗ Presentation outside validity period
Cheque dishonoured for “signature mismatch” (no funds-insufficiency reason)⚠ Can attract section 138 if the mismatch was a deliberate device to avoid payment (Laxmi Dyechem v. State of Gujarat, (2012) 13 SCC 375)
Demand notice sent 35 days after receipt of dishonour memo✗ Notice outside 30-day window
Drawer paid the cheque amount on day 12 after receiving the notice✓ Payment within 15 days; offence not complete
Complaint filed 6 weeks after cause of action (no application for condonation)✗ Barred by limitation under section 142
Cheque issued as a gift; no legally enforceable debt behind it✗ No qualifying debt or liability
Complainant is not the payee but a friend of the payee✗ No locus; only payee or holder in due course may complain
Cheque issued for a time-barred (limitation-expired) debt✗ Debt not legally enforceable
Section 147 settlement entered; both parties consent to compounding✓ Proceedings can be compounded
Cheque dishonoured because the drawer’s overdraft limit was exceeded✓ Expressly covered by section 138
Accused is acquitted; complainant has already received interim compensation under section 143A✓ Complainant must refund the interim amount with interest
Notice sent by courier (not registered post) and proved to be received✓ Service proved; mode not strictly prescribed by statute
Cheque given as a security at the start of a loan before liability crystallised; liability later crystallises and cheque is presentedDisputed; turns on facts and timing

How Niyam helps

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Frequently asked questions

What is section 138 of the Negotiable Instruments Act?

Section 138 criminalises the dishonour of a cheque that was issued for the discharge of a legally enforceable debt or liability, when the cheque is returned unpaid by the bank for insufficiency of funds or because the amount exceeds the overdraft arrangement. The drawer can be punished with imprisonment up to two years and/or a fine up to twice the cheque amount.

What is the validity period of a cheque in India?

Since 1 April 2012, following an RBI circular dated 4 November 2011, the validity of a cheque is three months from the date of issue. A cheque presented after three months becomes stale and its dishonour does not give rise to an offence under section 138.

Within how many days must the demand notice be sent after dishonour?

The written demand notice must be dispatched within 30 days of receipt of the bank’s dishonour memo. Missing this deadline is fatal to the complaint, because the cause of action never arises.

What must the demand notice contain?

The notice must identify the complainant and the drawer, specify the cheque details (number, date, amount, bank), state the date of dishonour and the bank’s reason, and demand payment of the cheque amount within 15 days of receipt of the notice. It should be sent by registered post with acknowledgement due.

How many days does the drawer have to pay after receiving the notice?

The drawer has 15 days from the date of receipt of the demand notice to make payment. If the drawer pays within this period, the offence under section 138 is not complete.

When does the cause of action arise?

The cause of action arises the day after the 15-day payment window expires without the drawer making payment. This is the date from which the one-month limitation for filing the complaint is counted.

How long do I have to file the complaint?

The complaint must be filed within one month of the cause of action. Courts can condone delay on proof of sufficient cause, but it is prudent to file within the limitation period.

Which court has jurisdiction to try a section 138 case?

Following the Negotiable Instruments (Amendment) Act, 2015, the court with jurisdiction is the one within whose local limits the payee’s bank branch is situated (the branch where the cheque was deposited for collection). This is the current law, superseding the earlier position under Dashrath Rupsingh Rathod v State of Maharashtra (2014).

Who can file a section 138 complaint?

Only the payee or the holder in due course of the cheque may file a complaint under section 142. No other person, including the payee’s agent, representative, or an assignee not qualifying as a holder in due course, has locus unless they fall within these categories.

What is the punishment for section 138?

Imprisonment for a term that may extend to two years, a fine that may extend to twice the amount of the cheque, or both. The court has discretion regarding the quantum within these ceilings.

What is the presumption under section 139?

Section 139 requires the court to presume that a cheque was issued for the discharge of a legally enforceable debt, once execution and delivery of the cheque is proved. The presumption is mandatory, not discretionary, and it is rebuttable by the accused on a preponderance of probabilities. The defence cannot displace this presumption at the pre-trial or process-issuance stage; it must be done through evidence at trial.

Can the drawer defend by saying the cheque was a security deposit?

Yes, but it is a complex defence. If the liability had not crystallised at the time the cheque was issued, courts have accepted the security-cheque argument. However, if the liability later crystallises and the cheque is presented to discharge it, the section 138 liability may attach. The defence requires specific factual evidence.

What is interim compensation under section 143A?

Section 143A empowers the trial court to direct the drawer to pay interim compensation up to 20 percent of the cheque amount during the pendency of the trial, after the accused pleads not guilty. The power is directory (not mandatory); the court may decline based on the prima facie plausibility of the accused’s defence. If the accused is acquitted, the complainant must refund the amount with interest.

What is the deposit required under section 148 when filing an appeal?

When appealing a conviction, the appellate court may direct the appellant to deposit a sum not less than 20 percent of the fine or compensation awarded by the trial court. This is a floor, not an absolute ceiling, and courts can relax it in exceptional cases. The deposit must be made within 60 days.

Is a section 138 offence compoundable?

Yes. Section 147 makes offences under Chapter XVII of the NI Act (including section 138) compoundable with the consent of both parties at any stage, including after conviction. The 2025 Supreme Court directions introduced a graded cost structure: no cost if compounded before defence evidence, 5 percent additional if compounded before judgment, 7.5 percent before an appellate court, and 10 percent before the Supreme Court.

Can I file a civil suit alongside a section 138 complaint?

Yes. Section 138 proceedings are criminal in nature and do not bar a parallel civil suit for recovery of the cheque amount with interest, for example under Order XXXVII of the Code of Civil Procedure (summary suit). Both tracks can run simultaneously, though courts may sometimes order a stay of the civil suit pending the outcome of the criminal proceedings.

What happens if the cheque was dishonoured because the account was closed?

Account closure is a disputed ground. Some courts treat it as equivalent to insufficiency of funds; others require the closure to have been deliberate. The better view, endorsed by several High Courts, is that deliberate account closure to avoid payment can attract section 138 liability, but this depends on the specific facts and the court’s reading of the drawer’s intent.

What if multiple cheques were issued and all bounced?

Each dishonoured cheque gives rise to a separate cause of action and requires a separate demand notice, a separate 15-day window, and a separate complaint. The complainant cannot club multiple cheques into a single notice or a single complaint unless the court allows it by special order.

Can an NRI or foreign-based payee file a section 138 complaint in India?

Yes, if the cheque was drawn on an Indian bank account. The complaint must be filed in India at the court having jurisdiction (the payee’s bank branch location in India). The NRI payee or their authorised representative may file and pursue the complaint.

What are the latest procedural reforms for section 138 cases?

In September 2025, the Supreme Court in Sanjabij Tari v Kishore S. Borcar issued comprehensive directions to address the backlog of over 6.5 lakh pending section 138 cases in Delhi alone. The directions include: service of summons through electronic modes (WhatsApp, email, SMS), a mandatory synopsis format for each complaint, online/UPI-based payment links on summons to facilitate early settlement, dedicated monitoring dashboards in district courts, and High Courts being directed to revise pecuniary limits for evening courts. These were to be implemented by 1 November 2025.

Key takeaways

  • Section 138 of the NI Act makes dishonour of a cheque for insufficient funds a criminal offence, provided the cheque was issued to discharge a legally enforceable debt.
  • The three-part timeline is non-negotiable: present the cheque within 3 months, serve a written demand notice within 30 days of dishonour, and file the complaint within 1 month of the cause of action.
  • The demand notice is the linchpin. A defective or belated notice extinguishes the cause of action.
  • Since the 2015 amendment, jurisdiction lies with the court in the payee’s bank branch location.
  • Section 139 creates a strong presumption in favour of the payee; the drawer must rebut it at trial, not at the pre-cognizance stage.
  • Section 143A allows interim compensation (up to 20 percent) during trial; section 148 mandates a minimum 20 percent deposit when the convicted drawer appeals.
  • Compounding under section 147 is available at any stage; a graded cost structure applies depending on when the parties settle.
  • Multiple bounced cheques require multiple notices and multiple complaints.
  • Running a parallel civil suit for recovery is permissible.

For precise analysis of any section 138 matter, including checking notice timelines, drafting complaints, or tracing the current judicial position on a specific defence, consider how AI legal research grounded in primary sources can sharpen your work. You might also find value in our guide on how to read and brief an Indian judgment and our overview of what changed with the new criminal laws, since the procedural provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) now govern cognizance and trial procedure in section 138 cases. Advocates reviewing related instrument-based disputes may also find the AI contract drafting and review workflow useful for structuring demand notices and settlement documentation.

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