Section 138 of the Negotiable Instruments Act, 1881 (NI Act) is a vital provision that addresses the issue of dishonored cheques in India. This article aims to provide a comprehensive understanding of Section 138 NI Act, including its key elements, legal requirements, procedure for filing a complaint, role of the courts, defenses available to the accused, remedies for the payee, recent amendments, case studies, challenges, and its overall importance and impact.

1. What is Section 138 of the NI Act?

Section 138 of the NI Act deals with the dishonor of cheques due to insufficient funds in the account of the drawer. It makes such dishonor a criminal offense, providing a legal framework to ensure the prompt settlement of liabilities and to maintain the credibility of negotiable instruments like cheques.

2. Key Elements of Section

To invoke Section 138 NI Act, certain elements must be fulfilled. These include the existence of a legally enforceable debt or liability, the issuance of a cheque for the discharge of the debt, the presentation of the cheque within a specified period, and the dishonor of the cheque due to insufficient funds.

3. Legal Requirements for Initiating Proceedings

To initiate proceedings under Section , the payee must send a demand notice to the drawer within 30 days of the dishonor of the cheque, seeking payment of the amount. The drawer has an opportunity to make the payment within 15 days of receiving the notice. Failure to comply with the notice can lead to a criminal complaint being filed.

4. Role of the Drawer, Drawee, and Payee

The drawer is the person who issues the cheque, the drawee is the bank on which the cheque is drawn, and the payee is the person to whom the payment is to be made. Each party has specific responsibilities and obligations under Section 138 NI Act.

5. Dishonor of Cheque and its Consequences

When a cheque is dishonored, it can have serious consequences for both the drawer and the payee. The payee may suffer financial loss, while the drawer may face legal action, including imprisonment and monetary penalties.

6. Procedure for Filing a Complaint

The procedure for filing a complaint under Section 138 NI Act involves approaching the appropriate court within the jurisdiction and filing a complaint accompanied by necessary documents, including the dishonored cheque, the demand notice, and other supporting evidence.

7. Jurisdiction and Venue

Determining the jurisdiction and venue for filing a complaint is crucial under Section 138 NI Act. The complaint should be filed in the court within whose territorial jurisdiction the bank branch where the payee maintains the account is situated.

8. Role of the Courts in Adjudicating Cases

The courts play a pivotal role in adjudicating cases related to Section 138 NI Act. They examine the evidence, hear the arguments of both parties, and deliver judgments based on the merits of the case. The courts also have the power to order the payment of compensation, fine, or imprisonment, if deemed necessary.

9. Defenses Available to the Accused

The accused, typically the drawer of the dishonored cheque, can avail themselves of certain defenses to avoid liability. These include lack of sufficient funds, issuance of the cheque as a gift or loan, and absence of knowledge of insufficiency of funds.

10. Remedies for the Payee

Section 138 NI Act provides remedies to the payee in case of a dishonored cheque. These include filing a criminal complaint, initiating civil proceedings for recovery of the amount, and seeking compensation for the financial loss suffered.

11. Recent Amendments to Section 138

Over the years, there have been several amendments to Section 138 NI Act to enhance its effectiveness and address emerging issues. These amendments have streamlined the process, increased the quantum of punishment, and introduced provisions for interim compensation.

12. Case Studies and Precedents

Examining case studies and precedents related to Section 138 NI Act helps in understanding its practical application. Such studies provide insights into landmark judgments, legal interpretations, and the evolving nature of the provision.

Section 138

13. Challenges and Criticisms

Section 138 NI Act has faced certain challenges and criticisms. Some argue that it leads to undue criminalization and burden on the courts, while others highlight the need for balance between the interests of the payee and the rights of the accused.

14. Importance and Impact of Section 138

Section 138 NI Act has significantly contributed to the efficiency of commercial transactions and the resolution of disputes arising from dishonored cheques. Its implementation has helped maintain trust in the banking system and promote financial discipline.


In conclusion, Section 138 of the NI Act serves as a crucial legal mechanism for addressing the issue of dishonored cheques in India. Its provisions ensure prompt resolution of such cases, protect the interests of the payee, and maintain the integrity of negotiable instruments. Understanding the key elements, legal requirements, and procedures under Section 138 NI Act is essential for individuals and businesses alike.

Frequently Asked Questions (FAQs)

  1. Can the drawer escape liability under Section 138 NI Act if they claim lack of knowledge about insufficient funds?
    • No, lack of knowledge about insufficient funds is not a valid defense under Section 138 NI Act. The law expects the drawer to maintain sufficient funds to honor the cheques issued by them.
  2. Can the payee directly approach the police without sending a demand notice under Section 138 NI Act?
    • No, as per the legal requirements, the payee must first send a demand notice to the drawer within 30 days of dishonor before initiating any criminal complaint.
  3. Is Section 138 NI Act applicable only to individuals, or does it also cover corporate entities?
    • Section 138 NI Act applies to both individuals and corporate entities. Any person or entity issuing a dishonored cheque can be held liable under this provision.
  4. Are there any exceptions to the time limit for filing a complaint under Section 138 NI Act?
    • Generally, the complaint must be filed within one month from the date of the expiry of the notice period. However, certain circumstances may warrant an extension of the time limit, subject to the court’s discretion.
  5. What is the maximum punishment for an offense under Section 138 NI Act?
    • The maximum punishment for an offense under Section 138 NI Act is imprisonment up to two years or a fine that may extend to twice the amount of the cheque, or both.

Leave a Comment

Your email address will not be published. Required fields are marked *