Section 138 of the Negotiable Instruments Act, 1881 — the cheque bounce provision — remains the most-used commercial remedy in Indian commerce. It is also among the most-misused: poorly drafted notices, missed deadlines, and confused jurisdictions render thousands of meritorious cases unenforceable each year.
For the holder of a dishonoured cheque, a 30-day clock starts the moment of dishonour. For the drawer, the same 30 days is the window for settlement before prosecution. Both must move with discipline.
Day 1–7 — Hold the Right Paper
Upon dishonour, the bank issues a return memo with the reason: insufficient funds, account closed, signature mismatch, stop payment, exceeds arrangement. Only certain reasons trigger Section 138 — primarily insufficient funds and exceeds arrangement. A signature mismatch or stop payment may need civil recovery, not criminal prosecution.
The original cheque, the original return memo, and the bank advice constitute your case file. Do not lose them. Do not deposit the cheque a second time without legal advice — sometimes useful, sometimes fatal to limitation.
Day 7–30 — The Statutory Notice
A formal demand notice under Section 138(b) must be issued within 30 days of receipt of return memo. The notice must:
- Demand the cheque amount (no add-ons that confuse the demand)
- Give the drawer 15 days to pay
- Be served by registered post with acknowledgment due, AND by speed post, AND ideally by email
- Bear a clear date of dispatch (this triggers the limitation clock)
The notice is the most-litigated document in Section 138 practice. We draft hundreds annually; each one is reviewed by a partner before despatch.
An ambiguous notice — one that mixes the cheque amount with interest, costs, or other claims — is the single most common reason cases fail at trial. The demand must be of the cheque amount, full stop.
Day 30–45 — The Drawer's Window
From the date the notice is received (not despatched), the drawer has 15 days to pay. If payment is made in full within 15 days, no prosecution lies. This is the single best opportunity for settlement — and we counsel drawers to use it.
If part-payment is made, the law is settled: even part-payment within the notice period does not extinguish the offence unless full payment occurs. But it does set up grounds for compounding later.
Day 46–75 — File the Complaint
If no full payment, the complaint must be filed within 30 days of expiry of the notice period (i.e., within 75 days of dishonour). Filing must be in the court of the bank branch where the cheque was presented for collection — this jurisdictional rule was clarified by the 2015 amendment and remains commonly misunderstood.
The complaint is presented before the Judicial Magistrate. Affidavit-in-lieu of examination is now permissible — speeding the process considerably.
The Drawer's Defences
Stale debt, lack of legally enforceable debt, alteration of cheque, security cheque, blank cheque — each of these is a recognised defence but each must be specifically pleaded with evidence. \"I did not issue the cheque\" is not a defence — that's an admission of forgery, which is graver.
Settlement Strategy
Most cheque bounce matters are settled, not adjudicated to verdict. The optimal point is the second or third hearing, after both sides have invested but before significant evidence is led. Our practice typically achieves settlements at 70 to 110 per cent of the cheque amount, depending on case strength and parties' commercial relationship.