Section 138 of the Negotiable Instruments Act, 1881
Section 138 makes the dishonour of a cheque for insufficiency of funds a criminal offence.
To attract liability:
- A cheque must be issued for a legally enforceable debt or liability.
- The cheque must be presented within its validity period.
- The bank must return it unpaid.
- The payee must issue a demand notice within 30 days of dishonour.
- The drawer must fail to make payment within 15 days of receiving the notice.
Punishment
Punishment may extend to two years’ imprisonment, or fine up to twice the cheque amount, or both.
The provision aims to ensure credibility and reliability of commercial transactions through cheques.
Frequently Asked Questions
Section 138 makes it a criminal offence if a cheque bounces because there isn’t enough money in the account to cover it. This law was created to make sure people can trust and rely on cheques as a safe way to make payments in business and daily life.
The cheque must be issued for a real, valid debt, and it must be presented to the bank within its validity period. If the bank returns it unpaid, the person who received the cheque must send a demand notice to the drawer within 30 days of the bounce.
If the drawer fails to make the payment within 15 days of receiving the demand notice, the case can move forward to court, and the drawer can be held legally responsible under Section 138.
The punishment can go up to two years in prison, a fine of up to twice the cheque amount, or both together, depending on how the court views the seriousness of the case.