Now Reading: Explained: What happens when your cheque bounces under Section 138
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Explained: What happens when your cheque bounces under Section 138
A bounced cheque can lead to criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881. The provision, added in 1988, applies when a cheque issued for a legally enforceable debt…
A bounced cheque can lead to criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881. The provision, added in 1988, applies when a cheque issued for a legally enforceable debt is returned unpaid due to insufficient funds or exceeding the bank arrangement.
The payee must send a written demand notice within 30 days of the dishonour. The drawer then has 15 days to pay. If no payment is made, a complaint can be filed within one month before a Judicial Magistrate First Class in the jurisdiction where the cheque was presented.
A conviction can lead to imprisonment of up to two years, a fine up to twice the cheque amount, or both. The offence is bailable and compoundable. Courts may order interim compensation of up to 20 percent of the cheque amount after charges are framed. Parties can settle at any stage.
Indian Opinion Analysis
Section 138 was inserted into the 1881 Act to address the growing misuse of cheques as a payment instrument without adequate legal deterrence. The law creates a criminal penalty for what is fundamentally a debt recovery issue, which has led to lakhs of pending cases in magistrates' courts across India. The procedural safeguards, the notice period and the 15-day cure window, are designed to prevent automatic criminalisation of genuine defaults. The next development to track is any legislative amendment or Supreme Court guideline that may raise the threshold for filing complaints or streamline the compounding process to reduce court backlog.
Source: timesofindia.indiatimes.com
This brief was synthesised by AI from the source linked above.
