MEANING
Section 138 of the Negotiable Act 1881 deals with the dishonour of cheques due to insufficient funds or other reasons, outlining the penalties and legal process for recovery.
To initiate a valid complaint under Section 138 NI Act, the following conditions must be fulfilled:
- Cheque must be issued for a legally enforceable debt or liability.
- Cheque must be presented to the bank within 3 months from the date on the cheque (as per the 2021 amendment).
- Cheque is returned unpaid due to:
- Insufficient funds, or
- Exceeds arrangement.
- Written demand notice must be issued to the drawer within 30 days of receiving the return memo from the bank.
- 15 days’ time must be provided to the drawer to make payment.
- If no payment is made, the complaint must be filed within 30 days from the expiry of the 15-day notice period.
LIMITATION PERIODS UNDER SECTION 138:
| Steps | Time limit | Legal reference |
| Cheque Presentation | Within 3 months from the date on the cheque | If cheque is not presented within 3 months, no cause of action arises |
| Dishonour of Cheque | As per bank’s memo | Bank will return the cheque with a “Return Memo” stating reasons (e.g., insufficient funds) |
| Demand Notice by Payee | Within 30 days of receiving dishonour memo from the bank | Under Section 138(b), the payee must send a legal notice demanding payment |
| Waiting Period after Notice | 15 days from date of receipt of notice by drawer | Under Section 138(c), the drawer has 15 days to make the payment |
| Filing of Complaint | Within 1 month (30 days) from expiry of the 15-day period | Under Section 142(b), if no payment is made, the payee must file the complaint in court within this period. |