Section 138 Cheque Bounce Notice Period: Everything You Need to Know

A cheque bounce notice under Section 138 gives you 15 days to pay after receiving it, before further legal action can follow.

• Bajaj Finance must issue the notice within 30 days of the cheque bounce.
• Paying within 15 days generally prevents the case from arising.
• Ignoring it can lead to imprisonment of up to two years, a fine of up to twice the cheque amount, or both.
• A case can be compounded (settled) even after a complaint is filed, subject to court process.

A cheque bounce notice under Section 138 of the Negotiable Instruments Act, 1881 is a formal written demand for payment issued after a qualifying cheque is dishonoured. The provision may apply when a cheque issued towards a legally enforceable debt or liability is returned unpaid for specified reasons, such as insufficient funds or exceeding the amount arranged with the bank. It also sets conditions relating to cheque presentation, notice and payment. In the case of an EMI cheque, outstanding loan dues may represent the debt or liability for which the cheque was issued. However, whether Section 138 applies depends on the facts and applicable legal requirements. A notice generally includes details of the dishonoured cheque, the bank's stated reason for return, the amount demanded, relevant dishonour details, the prescribed payment period and the possible legal consequences of non-payment. If any information appears incorrect, borrowers should retain relevant loan and payment records and seek appropriate legal advice.

How to use the notice period to clear dues and stop legal action

If you receive a cheque bounce notice under Section 138, use the notice period to review the stated dues and take timely steps towards payment. Acting promptly can help you address the outstanding amount and avoid further escalation, subject to the applicable legal requirements.

• Review the notice carefully: Check the cheque number, dishonour date, return reason, amount demanded, and payment deadline mentioned in the notice.
• Confirm the outstanding dues: Compare the amount stated in the notice with your loan account statement and payment records. Identify any overdue EMI, applicable charges, or other amounts that remain unpaid.
• Arrange the required funds: If the dues are payable, arrange sufficient funds to meet the payment demand within the applicable period.
• Make the payment through the appropriate channel: Use the lender's authorised payment methods and retain the transaction receipt, reference number and other proof of payment.
• Inform the lender after payment: Share the payment details through the applicable customer service channel, where required, so the payment can be reviewed and updated against the loan account.
• Keep all supporting documents: Preserve the notice, bank return memo, payment confirmation, account statement and correspondence relating to the matter.
• Seek legal advice where necessary: If you dispute the amount, believe the notice contains an error or are unsure about the legal implications, consult a qualified legal professional promptly.

Taking timely action during the notice period can help you address the dues and understand the next steps. Payment does not automatically determine the outcome of legal proceedings in every case, so follow the notice terms and applicable law carefully.

What is the demand notice period under Section 138?

Under Section 138 of the Negotiable Instruments Act, 1881, the payee or holder in due course must issue a written demand notice to the cheque drawer within 30 days of receiving information from the bank about the cheque being dishonoured. The notice must demand payment of the cheque amount. After receiving the notice, the drawer has 15 days to pay the cheque amount. If payment is not made within this period, the cause of action to file a complaint under Section 138 may arise, subject to the other requirements and limitation periods prescribed by law. For an EMI cheque, the notice may relate to an outstanding loan liability for which the cheque was issued. Borrowers should carefully check the notice date, bank return information, amount demanded and payment deadline. If you dispute the demand or the notice raises legal concerns, consider seeking advice from a qualified legal professional.

The cheque bounce legal process can move from bank dishonour to statutory notice and, if the legal requirements are met and payment is not made within the prescribed period, to a court complaint.

A general sequence is:

1. Cheque is presented: The cheque issued towards payment of an EMI or other legally enforceable loan liability is presented for payment within the applicable validity period.
2. Cheque is dishonoured: The bank returns the cheque unpaid and records the applicable return reason.
3. Bank information is received: The payee receives information about the dishonour.
4. Section 138 notice is issued: Where the statutory requirements are satisfied, the payee may issue a written demand notice within 30 days of receiving the bank's information.
5. 15-day payment period begins: The drawer has 15 days from receipt of the notice to pay the cheque amount.
6. Further legal action may follow: If the statutory conditions are met and payment is not made within the prescribed period, the payee may initiate a complaint under Section 138, subject to applicable legal requirements and the limitation period.

A Section 138 proceeding is not an automatic arrest or immediate conviction. The matter proceeds through the legal process, and the court decides the case based on applicable law and evidence.

What are the consequences of not responding to a cheque bounce notice?

Ignoring a cheque bounce notice can lead to further legal and financial consequences if the conditions under Section 138 of the Negotiable Instruments Act, 1881, are met. The notice should therefore be reviewed promptly, with attention to the payment deadline and the underlying loan dues.

• Further legal proceedings: If the statutory requirements are met and payment is not made within the prescribed period, the payee may initiate a complaint under Section 138, subject to applicable limitation and procedural requirements.
   
• Possible imprisonment: Section 138 provides for imprisonment for a term that may extend to two years.
   
• Possible fine: The fine may extend to twice the amount of the cheque, or the court may impose imprisonment, a fine, or both, as permitted by law.
   
• Continued loan dues: Non-payment of the underlying EMI or loan dues may result in separate consequences under the applicable loan terms and servicing processes.
   
• Credit reporting impact: Continued overdue payments may affect credit reporting, depending on the account status, reporting practices and applicable rules.
   
• Need for prompt action: Review the notice, verify the cheque and loan details, make appropriate payment through an authorised channel and retain all records. If you dispute the claim, seek qualified legal advice.
   

Responding within the prescribed timeframe helps you address the demand and understand your available next steps. Payment or settlement of dues does not automatically determine the outcome of any legal proceeding, so consider the specific facts and applicable law.

When can the payee file a cheque bounce case after notice?

A payee may initiate a cheque bounce complaint under Section 138 of the Negotiable Instruments Act, 1881, when the statutory conditions are satisfied, and the cheque drawer does not make payment within 15 days of receiving the demand notice. The demand notice must generally be issued within 30 days of the payee receiving notice from the bank that the cheque was dishonored. If payment is not made within the 15-day period, the cause of action to file a complaint may arise. The complaint must then be filed within the applicable limitation period, subject to the Act's provisions and any condonation permitted by law. For an EMI cheque, the underlying loan dues may constitute the legally enforceable debt or liability, depending on the circumstances. The drawer should review the notice, verify the payment demand and retain relevant records. Where the claim is disputed, obtaining qualified legal advice can help determine the appropriate response.