Dishonoured Cheques under Section 138: Notice, Complaint and Time Limits

A dishonoured cheque gives the payee a remedy that is quicker and more direct than an ordinary suit, but one that is lost entirely if its short deadlines are missed. This note describes the offence under Section 138 of the Negotiable Instruments Act, 1881, the sequence of notice and complaint, and the points on which complaints most often fail. It is general information, not advice on a particular cheque.

What must be shown

For an offence under Section 138, the complainant must establish each of the following:

• The cheque was drawn on an account maintained by the drawer with a bank, in favour of the payee, for the discharge, wholly or in part, of a debt or other liability that is legally enforceable.
• The cheque was presented within the period of its validity, which is three months from its date, or within any shorter period it carries.
• It was returned unpaid because the account held insufficient funds, or because the amount exceeded the arrangement with the bank.
• The payee made a demand for payment by notice in writing to the drawer within thirty days of receiving information from the bank that the cheque was unpaid.
• The drawer failed to pay the amount within fifteen days of receiving that notice.

The consequence of failing any one of these is that the complaint cannot succeed, however clear the underlying debt may be.

The timetable

1. Presentation. Present the cheque within three months of its date. It may be presented more than once within that period.
2. Return memo. Keep the bank's memo showing the date of dishonour and the reason given.
3. Notice. Send the demand notice within thirty days of receiving the bank's information. It should identify the cheque, the amount, the date of dishonour and the demand, and be sent by a traceable means.
4. Fifteen days. The drawer has fifteen days from receipt of the notice to pay.
5. Complaint. If payment is not made, the complaint must be filed within one month from the date on which the fifteen days expire (Section 142(1)(b)). A court may take cognizance after that period if the complainant satisfies it that there was sufficient cause for the delay.

Presumptions that help the complainant

Sections 118 and 139 raise presumptions that a negotiable instrument was made for consideration and that the holder received the cheque for the discharge of a debt or liability. In Rangappa v. Sri Mohan (2010), the Supreme Court held that the Section 139 presumption includes the existence of a legally enforceable debt. The presumption is rebuttable. The drawer need only raise a probable defence, on the standard of a preponderance of probabilities, and may do so through the complainant's own evidence. Once that is done, the burden returns to the complainant.

Where the complaint is filed

Since the 2015 amendment, Section 142(2) places jurisdiction, for a cheque delivered for collection through an account, in the court within whose local limits the branch of the bank where the payee maintains the account is situated. For a cheque presented otherwise than through an account, it lies where the drawer's branch is situated. A complaint filed in the wrong place is returned, and the lost time may not be recoverable.

Companies and their officers

Where the drawer is a company, Section 141 makes every person in charge of, and responsible to, the company for the conduct of its business liable, together with the company. A bare statement that a director is responsible is not enough; the complaint should say in what capacity the director was in charge of the business at the relevant time.

Penalty and interim relief

The offence is punishable with imprisonment for up to two years, or with a fine of up to twice the amount of the cheque, or with both. Section 143 provides for summary trial. Section 143A allows the court to direct the drawer to pay interim compensation of up to twenty per cent of the cheque amount, and Section 148 requires a convicted appellant to deposit a minimum of twenty per cent of the fine or compensation when appealing. These provisions give the complainant some security while the case is pending.

Settlement

The offence is compoundable, and the Supreme Court has laid down a scale of costs for compounding at different stages in Damodar S. Prabhu v. Sayed Babalal H. (2010). A settlement reached after the complaint has been filed should provide that the complaint is withdrawn only when the last payment has cleared, and should be recorded before the court.

Common reasons complaints fail

• The notice was sent late, or was sent before the cheque had been returned.
• The notice demanded an amount different from the cheque, or included sums not covered by it.
• The complaint was filed before the fifteen days had ended, or after the month had passed without an application to condone delay.
• The cheque was a security cheque for a debt that had not yet fallen due, or the debt was not legally enforceable, for example because it was time-barred.

A complaint under Section 138 is a criminal proceeding with a civil purpose. It is most effective when the notice and the first filing are prepared with the timetable in front of the advocate from the day the cheque comes back.