Section 138 applies when a cheque issued for the discharge of a debt or liability is returned unpaid because of insufficient funds (or because it exceeds the arrangement with the bank), the payee sends a written demand within 30 days of receiving the bank's return memo, and the drawer fails to pay within 15 days of receiving that notice. The payee may then file a criminal complaint within one month. Stop-payment and "account closed" returns are treated the same way.
How Section 138 works in India
- Present the cheque within its three-month validity.
- Bank returns it with a memo stating the reason (funds insufficient, exceeds arrangement, stop payment, account closed).
- Send a written notice within 30 days of receiving the memo, demanding the cheque amount.
- The drawer has 15 days from receipt to pay.
- If unpaid, file a complaint under Section 138 read with Section 142 within one month, in the court where the payee's bank branch is located.
- The court may order interim compensation of up to 20% under Section 143A; trial is summary in nature.
The cheque must have been issued for an existing debt or liability, which a supplier proves with invoices, delivery proof and the ledger. Section 139 presumes this in the payee's favour; the drawer must rebut it.
Why it matters for getting paid
A civil suit asks for money; a Section 138 complaint puts the drawer and, under Section 141, the company's directors at risk of a criminal conviction. Most drawers settle once the complaint is filed and summons issued. The timelines are strict, so the first step on a bounced cheque is to note the memo date and send the cheque bounce notice in time. Use the cheque bounce timeline calculator.
How FundRaksha uses it
FundRaksha's advocates send the Section 138 notice within 24 hours of receiving the cheque and return memo, by e-notice and registered post with acknowledgement, and file the complaint on the first available date if the 15 days pass. Many drawers pay during the notice period; those who do not face an application for 20% interim compensation at the first hearing. The fee is 30% of what is recovered.
Worked example (hypothetical)
A Kolkata distributor receives a ₹5,00,000 cheque from a retailer dated 1 March, deposits it on 3 March, and gets the return memo "funds insufficient" on 5 March. The notice must be sent by 4 April (30 days). It is sent on 10 March and received on 13 March; the drawer must pay by 28 March. He does not. The complaint window runs from 29 March to 28 April. The complaint is filed on 5 April; at the first hearing the court orders interim compensation of 20%, ₹1,00,000, payable within 60 days. The drawer settles for ₹5,00,000 plus costs before evidence.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.