Frequently Asked Questions | Section 138, Negotiable Instruments Act, 1881

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Frequently Asked Questions

Your Questions, Answered.

Answers to some common questions about matters under Section 138 of the Negotiable Instruments Act, 1881, provided for general information only and not as legal advice.

About the Practice

Adv. Suryanarayan M. Nadar was enrolled on the Roll of the Bar Council of Maharashtra & Goa on 18 August 2012 (No. MAH/4247/2012). His practice is confined to matters under Section 138 of the Negotiable Instruments Act, 1881.

He holds an LL.B. from the University of Mumbai (Gopaldas Jhamatmal Advani Law College, 2011), qualified in the All India Bar Examination, and holds a Certificate of Practice from the Bar Council of India (2013, COP/2013/17324). He was enrolled on the Roll of the Bar Council of Maharashtra & Goa on 18 August 2012 (No. MAH/4247/2012) and is a member of the Borivali Advocates Bar Association, Mumbai.

Adv. Suryanarayan M. Nadar appears before the Magistrate and Sessions Courts in Mumbai and the Bombay High Court, at the trial and appellate stages of a Section 138 matter.

The practice acts on either side of a Section 138 matter — for complainants (including individuals and businesses holding a dishonoured cheque) and for persons who have received a demand notice or a court summons.

Deadlines & Consequences

The demand notice must be made within 30 days of receipt of the bank's information about the return of the cheque (proviso (b) to Section 138). The period runs from the date the return memo is received, not the date of dishonour. Where a notice is not made in time on a particular dishonour, the cheque may, while it remains valid, be presented again, and a fresh cause of action may arise on a further dishonour and notice. The position depends on the facts, and independent advice should be taken.

On conviction, Section 138 provides for imprisonment which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both. Separately, under Section 143A, a court may in its discretion direct interim compensation of up to 20% of the cheque amount during the trial.

In Sripati Singh v. State of Jharkhand (2021), the Supreme Court held that a cheque described as "security" is not, for that reason alone, outside Section 138: where the underlying debt or liability has become due and payable and the cheque is dishonoured, the section may be attracted. Whether it applies depends on the facts of each case.

A summons should not be ignored. In general, an unanswered summons may be followed by a bailable warrant, then a non-bailable warrant. Defences that may be available under the law include a defective notice, the absence of a legally enforceable debt, or prior repayment; these must be raised at the appropriate stage with proper documentation. A person who has received a summons should take independent legal advice on their own facts.

Notice & Complaint

The demand notice should be in writing, addressed to the drawer at the correct address, and sent within 30 days of receiving the return memo. It is prudent to use a mode that provides proof of dispatch and service, such as registered post with acknowledgement due, and to retain a copy of the notice and the postal receipts.

Where a notice is correctly addressed and duly sent, service may in appropriate cases be presumed even if the envelope is returned unclaimed. Whether the presumption applies is a matter for the court on the facts of each case.

A cheque may be presented again within its period of validity. Under the statutory scheme, the cause of action for a complaint is ordinarily reckoned with reference to the demand notice that follows a dishonour. The precise position depends on the facts.

Evidence & Presumptions

Once the signature or execution of the cheque is admitted or proved, the law presumes that it was issued towards a debt or liability. This presumption is rebuttable — the accused may displace it, but must raise a probable defence supported by material, rather than a bare denial.

By virtue of the presumption, the cheque itself is treated as evidence of a debt or liability. How much further documentary proof is needed depends on the facts of the case and on the manner in which the defence is raised.

Yes. Section 145 permits the complainant's evidence to be given on affidavit and read in evidence, subject to the right of the accused to apply to cross-examine the person giving it.

Settlement, Sentence & Appeal

Yes. The offence is compoundable under Section 147, and the parties may arrive at a settlement at appropriate stages with the leave of the court.

On conviction, the court may impose imprisonment of up to two years, or a fine of up to twice the cheque amount, or both. The court may also order that compensation be paid to the complainant.

Yes. A convicted person may ordinarily appeal to the Court of Session. Under Section 148, an appellate court may direct the appellant to deposit at least 20% of the fine or compensation awarded.

Businesses & Companies

Along with the company, a person who was in charge of and responsible for the conduct of its business at the relevant time may be liable under Section 141 — provided the complaint contains the specific averments the section requires.

This turns on whether the person was in charge of and responsible for the business at the relevant time, and on the records evidencing their role and departure. Each case is decided on its own facts and the applicable legal principles.