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Negotiable Instruments Act, 1881 · Chapter XVII: Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts

Section 138: Dishonour of cheque for insufficiency, etc., of funds in the account

In plain words

If a cheque given to pay a debt or liability is returned unpaid because the account has insufficient funds or it exceeds the arranged limit, the drawer commits an offence, punishable with imprisonment up to two years, or a fine up to twice the cheque amount, or both.

  • The cheque must have been presented within six months of its date or within its validity, whichever is earlier.
  • The payee or holder in due course must send a written demand notice to the drawer within thirty days of learning from the bank that it was returned.
  • The offence is complete only if the drawer fails to pay within fifteen days of receiving the notice.
  • The debt or liability must be legally enforceable.

Example: X gives Y a cheque to repay a loan and it bounces for lack of funds. Y sends a written notice within thirty days. If X does not pay within fifteen days of receiving it, Y can file a complaint.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Read the in-depth explanation, with key Supreme Court rulings ↓

Official text

[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 provision 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:

Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.— For the purposes of this section, debt of other liability means a legally enforceable debt or other liability.

Source: India Code (indiacode.gov.in), the consolidated text published by the Legislative Department, Government of India. Text as updated on India Code on 15 October 2026. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Understanding this section

Section 138 makes dishonour of a cheque, for insufficient funds or exceeding the arrangement with the bank, a criminal offence. It is one of the most litigated provisions in India. The offence is unusual: it is not complete when the cheque bounces, but only when the drawer fails to pay within fifteen days of receiving a demand notice.

Ingredients, step by step

  • A cheque drawn on an account maintained by the drawer.
  • Issued to discharge, wholly or partly, a legally enforceable debt or liability.
  • Presented within six months of its date or within its validity, whichever is earlier.
  • Returned unpaid because funds are insufficient or it exceeds the arranged amount.
  • A written demand notice sent within thirty days of learning of the dishonour.
  • The drawer fails to pay within fifteen days of receiving the notice.

When the offence is complete and the limitation clock

The cause of action arises when the fifteen day period after notice expires without payment. The complaint must be filed within one month of that date (section 142), though a court may condone delay for sufficient cause. A complaint filed before the fifteen days end is premature.

Legally enforceable debt

A cheque given as a gift, or for a debt that is not legally enforceable, does not attract section 138. But section 139 presumes the cheque was for a debt or liability, so the burden of showing otherwise falls on the accused.

Which court

In 2014 the Supreme Court held that the case had to be filed where the drawee bank is. Parliament reversed this in 2015: under section 142(2), the case is filed where the payee's bank branch is, if the cheque was delivered for collection through an account.

Companies and directors

If the drawer is a company, section 141 makes liable every person in charge of and responsible to the company for its business at the time. The company itself must be made an accused. Ordinary directors are liable only if the complaint specifically avers their role; the managing director and the signatory of the cheque stand on a different footing.

A compensatory offence

Courts treat section 138 as primarily compensatory. Offences are compoundable (section 147), summary trial is the norm (section 143), and courts encourage early settlement, including by closing proceedings when the cheque amount with costs and interest is paid.

Key Supreme Court rulings

  • Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. 2012 INSC 187

    An authorised signatory of a company cannot be prosecuted under section 138 without the company itself being arraigned as an accused; liability falls primarily on the company and is extended to officers under section 141.

  • S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla 2005 INSC 432

    Specific averments that a person was in charge of and responsible for the conduct of the company's business are necessary in the complaint; a director is not deemed liable merely by being a director, while the signatory of the cheque and the managing director stand differently.

  • Dashrath Rupsingh Rathod v. State of Maharashtra 2014 INSC 514

    Territorial jurisdiction lay where the cheque was dishonoured by the drawee bank; this was later altered by the 2015 amendment inserting section 142(2).

  • Meters and Instruments Pvt. Ltd. v. Kanchan Mehta 2017 INSC 1009

    Where the accused pays the cheque amount with interest and costs assessed by the court, the court may close the proceedings; summary trial is the normal rule for section 138 cases.

  • Damodar S. Prabhu v. Sayed Babalal H. 2010 INSC 260

    Compounding under section 147 overrides section 320 of the CrPC; the compensatory aspect of the remedy is to be given priority over the punitive, and guidelines were laid down for compounding.

Common mistakes

  • Filing the complaint before the fifteen day period after notice has expired.
  • Prosecuting directors without the company, or without specific averments about their role.
  • Using the pre-2015 rule on territorial jurisdiction.

Read with: Section 139 NI Act, Section 141 NI Act, Section 142 NI Act, Section 147 NI Act

Prepared with AI assistance as a study aid. Every ruling listed was checked against the Supreme Court's own judgments on this site, and quoted words appear in those judgments; linked names open the full judgment. Read the judgments themselves before relying on them. Not legal advice.

Supreme Court judgments citing the section 138