Cheque Dishonour India 2026

In India, a cheque dishonour case under Section 138 of the Negotiable Instruments Act, 1881, can be a complex and time-consuming process. If you’re facing a cheque dishonour case, understanding the timeline, penalty, and settlement process is crucial to navigate the legal system effectively.

What is Section 138 of the Negotiable Instruments Act, 1881?

Section 138 of the Negotiable Instruments Act, 1881, deals with the dishonour of cheques. According to this section, if a cheque is dishonoured due to insufficient funds or if it exceeds the arrangement made with the bank, the drawer of the cheque can be held liable. The penalty for cheque dishonour under Section 138 can be imprisonment for up to two years or a fine that can extend to twice the amount of the cheque, or both. The timeline for filing a complaint under Section 138 is within one month from the date of receipt of the notice by the drawer. In the case of Sadanand Vishwanath Mahajan vs. State of Maharashtra (2018), the Supreme Court of India held that the complaint under Section 138 can be filed at the place where the cheque was presented for encashment, and not necessarily at the place where the cheque was issued.

Key takeaway: Understand the provisions of Section 138 to determine the liability and penalty for cheque dishonour.

Timeline for Filing a Complaint under Section 138

The timeline for filing a complaint under Section 138 is as follows: 1. The cheque is presented for encashment within six months from the date of issue. 2. The payee or holder of the cheque receives a notice from the bank stating that the cheque has been dishonoured. 3. The payee or holder of the cheque sends a notice to the drawer of the cheque within 30 days from the date of receipt of the notice from the bank. 4. The drawer of the cheque fails to pay the amount within 15 days from the date of receipt of the notice. 5. The payee or holder of the cheque files a complaint under Section 138 within one month from the date of expiry of the notice period. In the case of M/s. Disha Constructions vs. G. Vinod and others (2018), the High Court of Telangana held that the complaint under Section 138 is not maintainable if the notice is not issued within 30 days from the date of receipt of the notice from the bank.

Key takeaway: File a complaint under Section 138 within one month from the date of expiry of the notice period to avoid limitation.

Penalty for Cheque Dishonour under Section 138

The penalty for cheque dishonour under Section 138 can be imprisonment for up to two years or a fine that can extend to twice the amount of the cheque, or both. The penalty is determined by the court based on the facts and circumstances of each case. In the case of R. Vijayan vs. Baby (2012), the Supreme Court of India held that the court can impose a fine that is less than twice the amount of the cheque if the circumstances of the case warrant such a reduction. The UAE’s Federal Law No. 18 of 1993 regarding the Commercial Transactions Law also provides for penalties for cheque dishonour, including imprisonment and fines.

Key takeaway: The penalty for cheque dishonour under Section 138 can be severe, so it’s essential to take prompt action to settle the dispute.

Settlement Process for Cheque Dishonour under Section 138

The settlement process for cheque dishonour under Section 138 involves the following steps: 1. The payee or holder of the cheque sends a notice to the drawer of the cheque demanding payment. 2. The drawer of the cheque responds to the notice by either paying the amount or disputing the claim. 3. If the dispute is not settled, the payee or holder of the cheque files a complaint under Section 138. 4. The court may direct the parties to settle the dispute through mediation or arbitration. In the case of A. Krishna Murthy vs. M/s. New Era Clothing (2019), the High Court of Karnataka held that the court can exercise its discretion to quash the complaint under Section 138 if the parties have settled the dispute amicably.

Key takeaway: Settling the dispute amicably can help avoid the penalty and imprisonment under Section 138.

Defences Available in a Cheque Dishonour Case under Section 138

The defences available in a cheque dishonour case under Section 138 include: 1. The cheque was not issued by the accused. 2. The cheque was issued for a lawful consideration, but it was not presented for encashment within the stipulated time. 3. The payee or holder of the cheque did not send a notice to the drawer of the cheque as required under Section 138. 4. The drawer of the cheque has already paid the amount to the payee or holder of the cheque. The UK’s Bills of Exchange Act 1882 also provides for defences in cheque dishonour cases, including the defence of ‘material alteration’ of the cheque.

Key takeaway: Understanding the available defences can help the accused person to defend the case effectively.

Frequently Asked Questions

What is the timeline for filing a complaint under Section 138?

Within one month from the date of expiry of the notice period.

What is the penalty for cheque dishonour under Section 138?

Imprisonment for up to two years or a fine that can extend to twice the amount of the cheque, or both.

Can the complaint under Section 138 be filed at any place?

No, the complaint under Section 138 can be filed at the place where the cheque was presented for encashment.

Can the dispute be settled amicably?

Yes, the dispute can be settled amicably, and the court may exercise its discretion to quash the complaint under Section 138 if the parties have settled the dispute amicably.

Try LitigaForge AI free at litigaforge.com to get expert legal advice and assistance with your cheque dishonour case under Section 138.

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