When a cheque issued to discharge a debt or liability is returned unpaid for insufficient funds, the payee may have a remedy under Section 138 of the Negotiable Instruments Act, 1881. The law, however, sets out strict timelines that must be followed at each stage.
The sequence of steps
- Presentation: the cheque must be presented to the bank within its period of validity, which is currently three months from the date on the cheque.
- Demand notice: after dishonour, the payee must send a written notice demanding payment within 30 days of receiving information about the dishonour from the bank.
- Time to pay: the drawer gets 15 days from receipt of the notice to pay the amount.
- Complaint: if payment is not made, a complaint must be filed within one month after the 15-day period expires. A court may condone a delay if sufficient cause is shown.
Consequences
On conviction, the drawer may be punished with imprisonment of up to two years, a fine of up to twice the cheque amount, or both. Under Section 143A, the court may also direct the drawer to pay interim compensation of up to 20% of the cheque amount while the case is pending.
Things to keep in mind
- Keep the bank's return memo, a copy of the notice and the postal or courier proof of delivery.
- The cheque must have been given for a legally enforceable debt or liability.
- Missing a deadline can affect the case, so dates should be tracked carefully from the day the cheque is returned.
This article is published for general information only. It does not constitute legal advice or solicitation, and no lawyer–client relationship is created by reading it.