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.