138 – NEGOTIABLE INSTRUMENT ACT

DISHONOR OF CHEQUE

• Section 138 of the NI Act is a penal provision that deals with the punishment of dishonor of
cheque.
• When the cheque is returned by the bank unpaid either because of insufficient fund in the bank
account of the check drawer or because of agreement of bank with drawer not to exceed the
limit of amount more than the contract.
• Dishonor of cheque becomes an offence when these situations below are met:

1. the cheque has been presented to the bank either within 6 months from the date on
which is was signed or within the period of its validity.

2. that the demand of the payment of the said amount from the cheque issuer is made
within 30 days from the date of the receipt of the information from the bank that the
cheque is returned unpaid.

3. that when the information is conveyed to the cheque issuer that the check had been
returned unpaid and he fails to make the payment of the amount of the cheque within 15
days from the date when he got the notice of said dishonor of cheque.

PUNISHMENT : IMPRISONMENT FOR 2 YEARS OR WITH FINE OF TWICE OF THE AMOUNT OR WITH
BOTH.