Section 138 of the Negotiable Instruments Act, 1881 deals with the dishonor of a cheque due to insufficient funds. In simple terms, if a cheque bounces when deposited, the drawer (person issuing the cheque) can face criminal prosecution.
Definition of a Cheque Bounce
A cheque bounce occurs when the bank refuses to honor the cheque, usually because of insufficient funds, mismatched signatures, or account closure.
Why Section 138 Exists
The main purpose of Section 138 is to maintain trust and confidence in commercial transactions using cheques. It ensures that people don’t issue cheques carelessly or fraudulently.
Understanding the Purpose of a Legal Notice
A legal notice under Section 138 is a formal communication sent by the payee (the person to whom the cheque was issued) demanding payment after the cheque has been dishonored.
It serves as the final opportunity for the drawer to clear the dues before a criminal complaint is filed.
Common Reasons for Receiving a Notice Under Section 138
- Insufficient balance in the bank account.
- The cheque was issued but the account was closed.
- Signature mismatch or overwriting on the cheque.
- Stop payment instructions given to the bank.
- Post-dated cheque deposited before the date mentioned.
Step-by-Step Guide on What to Do After Receiving the Notice
Step 1: Stay Calm and Don’t Panic
Receiving a legal notice doesn’t mean you are guilty. It’s a legal procedure giving you a chance to respond before any criminal case is filed.
Step 2: Verify the Authenticity of the Notice
Ensure the notice contains correct details like your name, cheque number, amount, date of dishonor, and reason for return.
Fake or vague notices can be challenged in court.
Step 3: Check the Timelines and Dates
You get 15 days from the date of receiving the notice to make the payment. Always mark the date of delivery carefully — it is crucial for your legal defense.
Step 4: Contact a Lawyer Immediately
Consulting a lawyer who specializes in cheque bounce cases is the most important step. A lawyer can:
- Review the notice for legal accuracy
- Draft a professional reply
- Advise whether to settle or contest the claim
Step 5: Gather All Related Documents
Collect:
- The original cheque copy
- Bank memo showing the reason for dishonor
- Correspondence with the complainant
- Proof of any payments already made
These will help build your defense.
Step 6: Send a Reply to the Notice
You should reply within 15 days explaining your side of the story. A well-drafted reply can even stop the complainant from filing a case.
Never ignore or delay the reply — silence can be taken as admission of guilt.
ALSO READ: How to File a Cheque Bounce Case in India – Step-by-Step Legal Guide
Legal Timelines You Must Remember
Timeframe for Notice Issuance
The payee must send the legal notice within 30 days from the date of cheque dishonor.
Timeframe for Reply
The drawer (you) must reply within 15 days of receiving the notice.
Timeframe for Filing a Case
If payment isn’t made within 15 days, the complainant can file a case in court within 30 days.
Possible Defenses Available to You
1. No Legally Enforceable Debt
You can claim that the cheque was not issued against any real debt — for example, it was given as a security deposit.
2. Post-Dated Cheque Misuse
If the cheque was issued post-dated and deposited before the agreed date, you can defend yourself.
3. Cheque Was Lost or Stolen
If your cheque book was lost and someone misused it, file an FIR and inform your bank immediately.
4. Partial Payment or Settlement
If you have already made partial payments, show proof. Courts consider this during hearings.
What Happens If You Ignore the Legal Notice
Ignoring a notice can lead to:
- Criminal prosecution under Section 138
- A warrant being issued by the court
- Damage to your financial reputation
- Difficulty in getting bank loans or credit
Always reply — even if you believe the notice is false.
What Happens After the Case Is Filed
Summons from Court
You will receive a court summons to appear before the magistrate.
Evidence and Trial
Both parties present evidence — cheque, memo, notice, and reply letters. Witnesses may be examined.
Possible Outcomes
- Acquittal: If you prove there was no debt or misuse.
- Conviction: You may face imprisonment (up to 2 years) or a fine (up to twice the cheque amount).
How to Avoid Cheque Bounce Cases in Future
- Always maintain sufficient funds before issuing cheques.
- Avoid post-dated or blank cheques.
- Use online transfers or UPI for transactions.
- Keep track of old cheques issued.
Importance of Legal Assistance
Legal guidance helps you respond correctly, protect your rights, and negotiate settlements effectively.
Even one small legal error in your reply can weaken your defense.
How Lawyers Help in Section 138 Cases
A good lawyer will:
- Draft or reply to the legal notice
- Represent you in court proceedings
- Negotiate out-of-court settlements
- Prevent criminal liability through strong arguments
Alternatives to Criminal Proceedings
Parties can resolve cheque disputes through:
- Mediation or Arbitration
- Out-of-court Settlement
- Compounding of the offence (with mutual consent)
This saves time and reduces legal costs.
Case Study Example
Example:
Mr. A issued a cheque of ₹2,00,000 to Mr. B for business purposes. The cheque bounced due to insufficient funds. Mr. B sent a legal notice, but Mr. A ignored it.
Later, the court convicted Mr. A and ordered him to pay double the cheque amount as fine — a costly mistake that could’ve been avoided with proper legal advice.
Conclusion
Receiving a legal notice under Section 138 of the Negotiable Instruments Act is serious, but manageable if you act wisely.
Always stay calm, respond within deadlines, and consult an experienced cheque bounce lawyer.
Ignoring the notice or missing timelines can lead to criminal action — but timely response and expert advice can protect your rights and reputation.
FAQs
1. What should I do first after receiving a Section 138 notice?
Consult a lawyer and prepare your reply within 15 days.
2. Can a cheque bounce case be settled outside court?
Yes, both parties can settle through negotiation or mediation.
3. What happens if I don’t respond to the legal notice?
The complainant can file a criminal case, leading to summons and penalties.
4. Can I be jailed for cheque bounce in India?
Yes, imprisonment up to 2 years is possible if convicted.
5. Can I send a reply myself without a lawyer?
You can, but it’s not advisable — a lawyer ensures the reply is legally sound.