Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both:
Provided that nothing contained in this section shall apply unless:
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.— For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability.
Legal Commentary & Landmark Judgments: Section 138
Section 138 penalizes the dishonour of a cheque for insufficiency of funds or exceeding credit arrangements, establishing a quasi-criminal statutory remedy punishable with up to two years imprisonment and fines up to twice the cheque amount, designed to instill business confidence in commercial paper.
Section 138 is the most litigated commercial provision in Indian law. Strict procedural adherence is paramount: ensure the legal notice demands the EXACT cheque amount without mixing unliquidated damages; verify postal tracking showing delivery; count the 15-day cure window excluding the day of receipt; and file the complaint under Section 142 before the 30-day limitation window closes.