Brief Note on Section 138

The Negotiable Instruments Act, 1881

Section 138- Dishonor of Cheque for insufficiency, etc., of funds due to insufficient funds in the
account.

Essential Elements are:

1) Legally enforceable Debts

2) The cheque is drawn to make the whole or part of such payment (Legally Enforceable debts)
3) Returned due to insufficient funds.

Due to insufficient funds, dishonor of cheque is not an offence, if-

1) Presentation of cheque to bank within a period of six months from the period on which the
cheque is drawn, or within the period of its validity, whichever is the earliest.
2) A notice in writing to the drawer of the cheque by the payee or the holder, within 30 days of
the receipt of the dishonor cheque information.
3) The drawer of the cheque has to make the payment of such amount within 15 days of the
said notice.

If it is an offence, the punishment will be:

1) Imprisonment (may exceed to 2 years)

2) Fine (twice the cheque amount)

Normally, Section 138 is a civil wrong with criminal overtones.

Liable for conviction, if the demand doesn’t meet within 15 days of the receipt of such notice given
under Section 138 (b).

Offence under 138 is committed also in the matter where cheque is returned on the ground of
closure of account.

Section 138 will not preclude an action if the drawer of the cheque sends a notice to drawee or the
bank for the stoppage of payment.

No restriction regarding the no of times a cheque can be presented, but every subsequent
presentation and dishonor will give rise to a fresh cause of action.

As per section 140, Prosecution can’t use defense that the drawer has no reason to believe, he
issued a cheque that may be dishonor due to insufficient funds.

A NOTICE under section 138(b) is provided on Page 41 of The Negotiable Instruments Act, 1881.

A NOTICE under section 138(b) by an advocate is provided on Page 42-43 of The Negotiable
Instruments Act, 1881.