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

Section 138 NI Act Bare Act Text

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

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.

Section 138 NI Act in Simple Words

Ingredients of Section 138 NI Act

• A person (the drawer) draws a cheque on a bank account maintained by that person with a banker to pay money to another person.
• The cheque is issued for the discharge, in whole or in part, of a legally enforceable debt or other liability.
• The cheque is presented to the bank within 6 months from the date on which it is drawn or within the period of its validity, whichever is earlier.
• The bank returns the cheque unpaid because the balance in the account is insufficient or because the amount exceeds the limit arranged by an agreement with the bank.
• The payee or the holder in due course demands payment of the cheque amount by giving a written notice to the drawer within 30 days of receiving information from the bank about the dishonour.
• The drawer fails to pay the cheque amount to the payee or the holder in due course within 15 days of receiving the written notice.

Punishment Under Section 138 NI Act

Imprisonment of up to 2 years, or a fine of up to twice the cheque amount, or both. The offence is bailable, so the accused has a right to bail, and non-cognizable, so the police cannot arrest without a warrant. A court can act only on a written complaint by the payee or holder in due course under Section 142 NI Act, and the parties can settle (compound) the case under Section 147 NI Act.

Example of Section 138 NI Act

When Section 138 NI Act Does Not Apply

• The cheque was not issued for the discharge, in whole or in part, of a legally enforceable debt or other liability (Explanation).
• The cheque was presented after 6 months from its date, or after its validity ended, whichever is earlier (clause (a) of the proviso).
• No written demand notice was given within 30 days of the bank’s information that the cheque was returned unpaid (clause (b) of the proviso).
• The drawer paid the cheque amount within 15 days of receiving the notice (clause (c) of the proviso).

FAQs on Section 138 NI Act

Sections Related to Section 138 NI Act