Section 138 of the Negotiable Instruments Act (NI Act), 1881 is a law in India that makes cheque bouncing a criminal offence.
It provides a legal mechanism for payees to recover funds and penalizes the issuer of a bounced cheque.When Does an Offence Occur?
The offence is not committed simply because a cheque bounces. It requires the following specific sequence of events:The Issue: A cheque is
issued to discharge a legally enforceable debt or other liability.The Bounce: The bank returns the cheque unpaid, usually due to insufficient
funds or because it exceeds the arranged overdraft limit.The Demand Notice: The payee sends a written demand notice to the drawer within 30 days
of receiving the bank’s return memo.Failure to Pay: The drawer fails to pay the cheque amount within 15 days of receiving that notice.
Penalties and ConsequencesIf convicted under Section 138, the drawer can face serious legal consequences:Imprisonment: A term that may
extend up to two years.Fine: A fine that can extend to twice the amount of the cheque.Both: The court may impose both a fine and imprisonment.
Legal ActionBecause this converts a civil debt issue into a criminal liability, the process allows payees to initiate formal prosecution in court.
The complaint must be filed within one month of the cause of action arising (the 16th day after the drawer receives the demand notice).