Cheques, promissory notes and bills of exchange — including Section 138, the cheque bounce provision behind a large share of India's pending criminal cases. A curated selection; not the complete text.
Provided for study purposes. Cross-check against the official source (India Code / the relevant government gazette) before citing or relying on this text — amendments and corrections may not be reflected here.
A promissory note is an instrument in writing, not being a bank-note or a currency-note, containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. It includes the electronic image of a truncated cheque and a cheque in the electronic form.
A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer. An instrument is payable to order which is expressed to be so payable, or which is expressed to be payable to a particular person and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.
The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or acceptor, to compensate the holder, provided due notice of dishonour has been given to or received by the drawer.
Until the contrary is proved, it shall be presumed that every negotiable instrument was made or drawn for consideration; that every negotiable instrument bearing a date was made or drawn on such date; that every accepted bill was accepted within a reasonable time after its date and before its maturity; that every transfer was made before maturity; that the endorsements appear in the order in which they were made; and that the holder is a holder in due course.
Where a cheque drawn by a person on an account maintained by them for the discharge, in whole or in part, of any debt or other liability is returned by the bank unpaid because the amount standing to the credit of that account is insufficient, or because it exceeds the amount arranged to be paid, that person is deemed to have committed an offence and is punishable with imprisonment which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or with both. The offence arises only where the cheque was presented within its period of validity, the payee gave a written demand for payment within thirty days of receiving information of the dishonour, and the drawer failed to make payment within fifteen days of receiving that notice.
It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in Section 138 for the discharge, in whole or in part, of any debt or other liability.
Where an offence under Section 138 is committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of its business, as well as the company itself, is deemed guilty and liable to be proceeded against and punished. A person is not liable if they prove that the offence was committed without their knowledge or that they exercised all due diligence to prevent it.
No court shall take cognizance of an offence under Section 138 except upon a complaint in writing made by the payee or the holder in due course, made within one month of the date on which the cause of action arose. A court may take cognizance of a complaint after that period if the complainant satisfies the court that they had sufficient cause for not making it within time. No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try such an offence.
The court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant, not exceeding twenty per cent of the amount of the cheque, where the drawer pleads not guilty to the accusation in a summary or summons trial, or upon framing of charge in any other case. The interim compensation shall be paid within sixty days of the order, extendable by a further thirty days for sufficient cause.
In an appeal by the drawer against conviction under Section 138, the Appellate Court may order the appellant to deposit a sum which shall be a minimum of twenty per cent of the fine or compensation awarded by the trial court, in addition to any interim compensation already paid. The amount shall be deposited within sixty days of the order, extendable by a further thirty days for sufficient cause.