When a cheque given to you for a debt is returned unpaid, Section 138 of the Negotiable Instruments Act, 1881 makes it an offence, provided certain steps are taken within fixed time limits. Missing one of these limits can end the case before it starts.
1. Present the cheque while it is valid
A cheque must be presented to the bank within three months from the date written on it, or within its period of validity, whichever is earlier.
2. Send a written demand notice within 30 days
Once the bank returns the cheque unpaid, for example for “funds insufficient” or “exceeds arrangement”, the payee must send a written notice to the drawer demanding payment of the cheque amount. The notice must be sent within 30 days of receiving the bank's return memo.
3. The drawer gets 15 days to pay
The drawer has 15 days from receiving the notice to pay the amount. The offence is complete only if payment is not made within these 15 days.
4. File the complaint within one month
If the amount is not paid, the complaint must be filed before the Magistrate within one month from the date the 15-day period ends. The court may condone a delay if sufficient cause is shown.
What the law provides
On conviction, the court may impose imprisonment of up to two years, a fine of up to twice the cheque amount, or both. The offence is compoundable, so the parties can settle the matter at any stage.
This article is for general information only and is not legal advice. The facts of each case differ, so please consult an advocate about your own matter.