Cheque bounce: how Section 138 of the NI Act works

What Section 138 covers

Section 138 of the Negotiable Instruments Act, 1881 makes it an offence if a cheque issued to discharge a legally enforceable debt or liability is returned unpaid by the bank because of insufficient funds or because the amount exceeds the arrangement with the bank, provided the conditions in the section are met.

The steps and time limits

1. Present the cheque to the bank within its validity period.
2. Cheque is returned unpaid. Keep the bank’s return memo.
3. Send a written demand notice to the drawer within 30 days of receiving information from the bank about the dishonour.
4. Wait 15 days after the drawer receives the notice, so that the drawer can pay.
5. File a complaint before the magistrate if payment is not made, generally within one month after the 15-day period ends (Section 142).

These time limits are strict, so keep proof of every step.

Ideas to know

• Legally enforceable debt: the cheque must relate to a debt or liability that the law can enforce. A cheque given as a gift or for a barred debt raises issues.
• Presumption: the Act contains presumptions in favour of the holder, such as that the cheque was issued for a debt or liability, which the drawer can try to rebut.
• Punishment: imprisonment, a fine, or both, up to the limits in the Act.

For freelancers and small businesses

Put payment terms in writing, and keep records of invoices and messages. Read our guide on freelancers and contracts and practise the demand letter exercise.

Key references

Start with these primary sources, and check the current official text before relying on them.

• Negotiable Instruments Act, 1881: Sections 138, 139 and 142.
• Check recent Supreme Court decisions on the notice period, jurisdiction to file, and interim compensation.