Section 138 of the Negotiable Instruments Act, 1881 (NI Act) and its procedure:-

Section 138 of the Negotiable Instruments Act, 1881 (NI Act) deals with the offence of cheque dishonour for insufficiency of funds or if it exceeds the amount arranged to be paid by the drawer. It is a penal provision that makes dishonour of certain cheques a criminal offence.

Essentials of Section 138 NI Act:
To attract Section 138, the following conditions must be satisfied:
Cheque must be drawn on an account maintained by the drawer.
Cheque must be issued for discharge of a legally enforceable debt or liability.
Cheque must be presented within 3 months (or within its validity period, whichever is earlier).

Cheque must be returned/dishonoured by the bank due to:
Insufficient funds, or
Exceeds the amount arranged to be paid.
Payee must send a written demand notice to the drawer within 30 days from receipt of return memo from bank.
Drawer must fail to make payment within 15 days of receipt of such notice.

Procedure under Section 138 NI Act:
1. Dishonour of Cheque
The cheque is deposited and returned unpaid by the bank with a memo (e.g., “Funds insufficient”).
2. Demand Notice
The payee must send a legal notice (preferably via Registered Post/Speed Post) to the drawer within 30 days of receiving information about the dishonour.
The notice must demand payment of the cheque amount within 15 days.
3. No Payment Received
If the drawer fails to pay within 15 days, a cause of action arises.
4. Filing of Complaint
A criminal complaint under Section 138 can be filed within 30 days from the expiry of the 15-day period.
The complaint is filed before a Magistrate of First Class in the local jurisdiction where:
The cheque was presented, or
The bank dishonoured it, or
The notice was sent/received.
5. Court Process
Summons issued to the accused.
Pleadings and Evidence: Both parties submit documents and evidence.
Trial and Arguments.
If proved, punishment can include:
Imprisonment up to 2 years, or
Fine up to twice the cheque amount, or both.

Additional Notes:
Compoundable offence: The matter can be settled anytime during the trial.
Pre-summoning evidence (affidavit & documents) is usually submitted with the complaint.
Section 139 provides presumption in favour of the holder that the cheque was issued for discharge of debt.Activate to view larger image,