Section 138 NI Act explained: cheque bounce law in simple words
Updated 2026-10 · General information, not legal advice.
Section 138 makes it a criminal offence when a cheque given to pay a debt bounces for insufficient funds or because the amount exceeds the arrangement with the bank, if the steps in the law are followed on time.
When to use this
- A cheque you received for a debt or liability bounced
- You want to know the punishment and the deadlines
- You are the one who issued the cheque and received a notice
Step by step
- 1
The cheque must be valid
It must be for a legally enforceable debt or liability, presented to the bank within its validity period (generally 3 months), and returned unpaid for insufficient funds or exceeding the arrangement.
- 2
Send a written demand notice within 30 days
After the bank's return memo, the payee must send a notice to the drawer within 30 days demanding payment of the cheque amount.
- 3
The drawer gets 15 days to pay
If the drawer does not pay within 15 days of receiving the notice, the offence is complete.
- 4
File the complaint within one month
The payee can file a complaint in the court within one month after the 15 days end. The court that has jurisdiction is usually where the payee's bank branch is.
Key facts
- Punishment can be imprisonment up to 2 years, a fine up to twice the cheque amount, or both
- The court can order interim compensation of up to 20% of the cheque amount
- Missing the 30-day notice or the one-month filing window can end the case
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Common questions
Is a bounced cheque always a crime?
Only if the conditions of Section 138 are met, including a debt, a valid cheque, a notice on time and non-payment after the notice.
Can I settle after filing?
Yes. The offence can be compounded, and many cases settle with payment.