Cheque Dishonour Under Section 138: Case Procedure

A cheque dishonour becomes a Section 138 case only after a specific sequence plays out, a written demand notice within 30 days, then 15 days for the drawer to pay, before a complaint can even be filed, so dishonour alone is never the end of the story.
 

• Paying within the 15-day window can stop the case before it starts. This is the single most effective way to prevent the cause of action from arising, act within the notice period, not after.
   
• The documents you keep matter as much as the payment itself. The cheque, the return memo, the notice, proof of its delivery, and your payment records all support your position if the matter proceeds, gather these as soon as dishonour happens, not later.
   
• Interim compensation and appeal deposits aren't automatic penalties. These operate through the court process at specific stages, not immediately after a cheque bounces, don't assume the maximum consequence applies from day one.
   
• Settlement doesn't automatically end court proceedings. Even with mutual agreement, compounding still has to go through the proper legal process, an informal understanding between parties isn't the same as a closed case.
   

If your dishonoured cheque relates to a loan, check your outstanding amount through My Account and pay through an authorised channel promptly, resolving the underlying repayment is separate from the legal notice, but addressing it quickly protects your position either way.

A cheque dishonour case under Section 138 of the Negotiable Instruments Act, 1881 arises when a cheque issued towards a legally enforceable debt or liability is returned unpaid for reasons covered by the provision, such as insufficient funds or exceeding the agreed arrangement. The payee or holder in due course may initiate legal proceedings when the prescribed conditions are fulfilled. Generally, the payee must issue a written demand notice to the drawer within 30 days of receiving notice from the bank that the cheque was dishonoured. The drawer gets 15 days from receiving the notice to make the payment. If the payment is not made within this period, the payee may file a complaint before the competent court within the prescribed time. The case may involve submitting relevant documents and evidence, and attending court hearings. Section 138 provides a legal remedy for cheque dishonour, subject to compliance with the statutory requirements, timelines and other applicable conditions.

How to avoid cheque dishonour on your loan EMI

The safest way to avoid a Section 138 situation entirely is to remove cheque payments from your EMI repayment altogether:

• Switch to a NACH mandate: An electronic auto-debit removes the manual step of writing and presenting a cheque each month, and reduces the specific dishonour risks tied to physical cheques, such as signature mismatch or an expired validity period.
   
• Maintain sufficient balance before your due date: Whether you pay by cheque or NACH, insufficient funds remain the most common cause of dishonour, check your balance a day or two ahead, not on the day itself.
   
• Keep your registered bank details current: If you've changed banks or accounts, update your registered repayment account through My Account before your next EMI is due, an outdated mandate or account detail can cause a failure that looks avoidable in hindsight.
   
• Never post-date a cheque beyond its validity period: A cheque presented after its validity period is dishonoured regardless of your account balance, check the date before handing over or scheduling a physical cheque.
   
• Set a reminder ahead of your due date: A simple calendar alert a few days before your EMI is due gives you time to fix a shortfall before the cheque or debit is actually presented.
   

If you've already had an EMI cheque dishonoured, switching to a NACH mandate going forward is the single most effective way to prevent it happening again, since it removes most of the manual failure points a physical cheque introduces.

What are the penalties for cheque dishonour under Section 138?

A person convicted under Section 138 may face imprisonment of up to two years, a fine of up to twice the cheque amount, or both. The statutory maximum does not mean that every cheque bounce case results in the maximum penalty. The outcome depends on the proceedings and facts of the individual case.

The potential consequences can include:

The law also contains provisions concerning interim compensation and deposits during appeals. These provisions operate through the court process and should not be treated as an automatic penalty applicable immediately after a cheque is returned unpaid.

The Section 138 process generally moves from cheque dishonour to statutory demand notice and then to court proceedings if the required payment is not made within the prescribed period. The timelines under the Negotiable Instruments Act, 1881 matter because missing a statutory deadline can affect your ability to pursue a complaint.

The process can be understood in these stages:

1. Cheque is presented: The payee presents the cheque to the bank within the applicable validity period
2. Cheque is dishonoured: The bank returns the cheque unpaid and provides information about the dishonour
3. Demand notice is issued: The payee or holder in due course sends a written demand for payment within 30 days of receiving information about the dishonour
4. 15-day payment period: The drawer has 15 days from receipt of the notice to pay the cheque amount
5. Cause of action arises: If payment is not made within the statutory period, the conditions for initiating a Section 138 complaint may arise
6. Complaint is filed: The payee may initiate proceedings before the court having jurisdiction, subject to the requirements and limitation period under Section 142
7. Court proceedings continue: The court considers the complaint, evidence and applicable legal provisions before determining the matter

The statutory process is different from a routine bank recovery or payment reminder. A borrower who receives a legal notice should review it promptly and take appropriate action rather than ignore it.

How can you resolve an outstanding loan payment through Bajaj Finance?

If the dishonoured cheque relates to an outstanding loan, resolving the underlying payment through the lender's official channels can help address the overdue amount, while the legal position is considered separately. For eligible loan accounts, you can check available repayment information through the Bajaj Finance App or My Account.

To check your loan account:

1. Sign in using your registered mobile number and OTP
2. Open My Relations and select the relevant loan
3. Review the outstanding amount, repayment details and available payment options
4. Make the applicable payment using the available official option
5. Retain the payment confirmation for your records

To raise a payment-related query:

1. Sign in to the Bajaj Finance App or My Account
2. Open Help & Support
3. Select the relevant loan account
4. Choose the appropriate query category
5. Enter the details of the payment or cheque-related concern
6. Submit the request and retain the service request reference

Payment of an outstanding amount does not by itself determine the legal status of a Section 138 proceeding. If you have received a statutory notice or court communication, review the document and obtain legal advice where necessary.

Documents that establish the cheque, dishonour, underlying liability, notice and payment history can be relevant to a Section 138 matter. The exact documents required depend on the facts of the case and the stage of proceedings.

Relevant records may include:

• Original cheque or available cheque records
• Bank return memo or information confirming dishonour
• Copy of the statutory demand notice
• Proof of dispatch and delivery of the notice, where available
• Loan agreement or other document establishing the underlying liability
• Account statement showing the amount due
• Payment receipts or transaction records
• Relevant correspondence between the parties
• Court documents, if proceedings have already been initiated

Keep documents in their original form where possible and avoid altering or discarding records relating to the transaction.

What notice must be given before filing a dishonour case?

Before filing a cheque dishonour complaint under Section 138 of the Negotiable Instruments Act, 1881, the payee must issue a written demand notice to the cheque drawer. The payee must issue the notice within 30 days of receiving information from the bank that the cheque was dishonoured. It should demand payment of the cheque amount and provide the drawer an opportunity to make the payment. The drawer has 15 days from the date of receiving the notice to pay the amount. If payment is not made within this period, the cause of action to file a complaint under Section 138 may arise, subject to fulfilment of the other statutory requirements. The notice should clearly identify the cheque, the dishonour and the amount demanded. The payee should retain evidence of the notice, its contents and delivery for the legal process. The prescribed timelines matter because non-compliance can affect the maintainability of the complaint.