Navigating the rigid procedural landscape of Section 138 of the Negotiable Instruments Act, 1881 requires strategic precision, not just a standard template. As the backbone of India’s commercial dispute resolution, the ‘cheque bounce’ regime has evolved significantly—from the 2002 Amendment enhancing imprisonment to two years, to the 2018 introduction of Section 143A interim compensation.

This comprehensive analysis decodes the statutory notice lifecycle, exposes fatal drafting errors like the ‘omnibus demand,’ and provides a roadmap for enforcing vicarious liability under Section 141 against corporate directors.

Section 138 Statutory Notice Regime | Evaakil.com

Updated Oct 2025

Procedural Analysis of the Statutory Notice Regime Under Section 138 of the Negotiable Instruments Act, 1881

The architecture of India’s commercial laws anchors itself in the Negotiable Instruments Act, 1881. The cheque serves as a reliable substitute for currency in settlement of commercial obligations. However, the erosion of trust due to rampant insufficient funds led to the criminalization of cheque dishonour. The legislature created a “constructive offence” where the act of dishonour alone is not the crime. The offence completes only when the drawer fails to pay after receiving a mandatory statutory notice.

Core Concept: A valid notice is not a mere formality. It is a foundational element of the offence. Without a valid notice served within the limitation period, the criminal machinery under Section 138 cannot function.

The Trinity of Timelines

Procedural rigour defines Section 138 cases. The Supreme Court in M/s. Saketh India Ltd. v. M/s. India Securities Ltd. established that limitation rules require strict construction. Three distinct periods govern the lifecycle of a case.

Figure 1: The mandatory procedural lifecycle of a Section 138 Cheque Bounce Case.

If the 30-day window for the notice is missed, the remedy under Section 138 extinguishes for that specific presentation. The payee must present the cheque again to generate a fresh cause of action.

Drafting Protocols: The “Said Amount” Doctrine

Drafting a legal notice under this section requires precision. A frequent error involves the “Omnibus Demand.” This occurs when the notice lumps the cheque amount with interest and costs into a single global figure.

Fatal Error: Demanding “Rs. 1,50,000” when the cheque is for “Rs. 1,00,000” renders the notice invalid. The Supreme Court in Suman Sethi v. Ajay K. Churiwal and recently in Upasana Mishra v. Trek Technology India Pvt. Ltd. (2024) clarified that the demand for the cheque amount must be severable and distinct.

Correct phrasing for demands

It is legally permissible to claim interest at 18% per annum under Section 80 of the NI Act. However, the demand should explicitly state: “I call upon you to pay the cheque amount of Rs. X. Additionally, I call upon you to pay interest.” The demand for the cheque amount must remain unconditional.

Jurisdiction and Digital Service

The 2015 Amendment fundamentally shifted jurisdiction to the location of the payee’s bank. This overturned the Dashrath Rupsingh judgment that had restricted jurisdiction to the drawer’s bank. This change allows businesses to prosecute defaulters from their own operational base.

Modern Service Methods

In Rajendra v. State of U.P. (2024), the Allahabad High Court validated service via Email and WhatsApp. The “Blue Tick” or “Delivered” status now serves as proof of receipt under the Information Technology Act, 2000. We recommend a hybrid approach using Speed Post combined with digital delivery.

Bank Return Memo Decoder

The “Return Memo” from the bank often contains cryptic codes. However, courts have consistently held that the specific reason matters less than the ultimate outcome: the money was not paid. Below is a guide to interpreting common return reasons.

Refer to Drawer

This is a polite banker’s euphemism for “Insufficient Funds.” Courts universally accept this as valid ground for Section 138 proceedings.

Account Closed

Closing the account before the cheque is presented is considered a deliberate trick. It attracts Section 138 liability immediately (NEPC Micon Ltd. v. Magma Leasing).

Stop Payment

If the drawer orders a stop payment, it is still an offence unless they can prove there were sufficient funds at the time and valid commercial reason existed.

Signatures Differ

Often used as a tactic. If the drawer deliberately signs incorrectly to cause dishonour, it falls under the ambit of “dishonest intention” and is actionable.

Corporate Vicarious Liability (Section 141)

When a company commits an offence, the liability extends vicariously to persons in charge of the business. However, this is not automatic. The complainant must make specific averments in the notice and the complaint.

Role	Liability Status	Legal Requirement
Managing Director	Automatic Liability	Deemed to be in charge of day-to-day affairs by virtue of position.
Signatory Director	Specific Liability	Liable as the executor of the dishonoured instrument.
Non-Exec Director	No Automatic Liability	Specific role in the transaction must be proven.
Independent Director	Protected	Generally immune unless active connivance is proven.

Key Precedent: K.K. Ahuja v. V.K. Vora The Supreme Court held that merely holding a designation is insufficient for criminal liability. The complainant must demonstrate how the individual was responsible for the conduct of business at the precise time the offence was committed.

Post-Complaint Litigation Lifecycle

Once the complaint is filed, the magistrate examines the verification statement. If satisfied, summons are issued. The process transforms from a civil recovery mechanism into a criminal trial.

Figure 2: The judicial workflow after filing the complaint.

Strategic Defense: The Reverse Onus (Section 139)

Section 138 is unique because it flips the “Burden of Proof.” Under Section 139, the court presumes that the cheque was issued for a debt. The accused cannot simply remain silent; they must actively rebut this presumption.

Standard of Proof for Accused: The accused does not need to prove innocence “beyond reasonable doubt.” They only need to prove their defense by a “preponderance of probability”—a lower standard similar to civil cases.

Common Rebuttal Strategies:

Security Cheque: Proving the cheque was given only as security for a transaction that never materialized.
Time Barred Debt: A cheque issued for a debt that is already time-barred (older than 3 years) is not enforceable (Sasseriyil Joseph v. Devassia).
Lost Cheque: Proving the cheque was lost or stolen and a police complaint was filed prior to presentation.

Interim Compensation (Section 143A)

The 2018 Amendment empowered courts to grant immediate relief to complainants. This provision addresses the delay tactics often employed by the accused.

Provision	Details
Amount	Up to 20% of the cheque amount.
Timing	Payable within 60 days of the order (extendable by 30 days).
Consequence	If unpaid, it can be recovered as a land revenue arrears (assets seizure).
Refund	If accused is acquitted, complainant must return the money with interest (bank rate).

Settlement Mechanisms: Compounding Offences

Unlike standard criminal cases (like theft or assault), Section 138 offences are “Compoundable” under Section 147. This means parties can settle the matter at any stage, even after conviction in appellate courts.

In Damodar S. Prabhu v. Sayed Babalal H., the Supreme Court laid down guidelines to encourage early settlement by imposing graded costs:

Settlement at Summons Stage: No Cost.
Settlement at Evidence Stage: 10% of Cheque Amount to Legal Services Authority.
Settlement at High Court/Supreme Court: 15% to 20% of Cheque Amount.

Comparative Analysis: Evolution of the Law

Parameter	Pre-2002 Era	2002-2015 Era	Current Regime (2025)
Imprisonment	Up to 1 Year	Up to 2 Years	Up to 2 Years
Notice Period	15 Days	30 Days	30 Days
Jurisdiction	Variable	Drawer’s Bank	Payee’s Bank (Sec 142(2))
Interim Comp.	None	None	Up to 20% (Sec 143A)

Interactive Guidance: Common Pitfalls vs Best Practices

Select a category below to view critical drafting and procedural insights.

Drafting Audit: Correction of Common Template Errors

We analyzed standard templates often used by practitioners (including the one recently uploaded). A critical error persists regarding the punishment term.

Legacy/Incorrect Clause (From Uploaded File)	Correct Statutory Clause (2025)
“…liable to be punished with imprisonment which may extend to one year…”	“…liable to be punished with imprisonment which may extend to TWO YEARS…”

*Note: The limitation was increased from 1 year to 2 years via the 2002 Amendment Act. Notices utilizing the “one year” language are technically citing repealed law.

Notice Validator Checklist

Before dispatching your legal notice, run it through this compliance validator.

Cheque presented within 3 months of issuance.

Notice drafted within 30 days of Return Memo date.

Demand for Cheque Amount is distinct from Interest/Cost.

Correct punishment term (2 Years) is cited.

15 Days time given for payment in the notice.

Standardized Notice Template

The following template incorporates the “Two Year” penal term and segregates the interest demand to ensure validity.

NOTICE UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 To, [Name of Drawer] [Address] Sub: Statutory Notice regarding Dishonour of Cheque No. [___] dated [___] for Rs. [___] drawn on [___ Bank]. Dear Sir/Madam, Under instructions from my client, [Client Name], I serve upon you the following notice: 1. That in discharge of your legally enforceable liability, you issued Cheque No. [___] dated [___] for Rs. [___] drawn on [Bank Name]. 2. That my client presented the said cheque for encashment, but it was returned unpaid with the remark “Insufficient Funds” vide Return Memo dated [___]. 3. That you have failed to pay the amount despite repeated requests. 4. Please take notice that you are liable to be prosecuted under Section 138 of the Negotiable Instruments Act, 1881. You are liable to be punished with imprisonment which may extend to **TWO YEARS** or with fine extending to twice the cheque amount. 5. I hereby call upon you to pay the **principal cheque amount of Rs. [___]** within 15 days of receipt of this notice. 6. Additionally, I call upon you to pay interest @ 18% p.a. and legal costs of Rs. [___]. Failure to comply with the demand for the cheque amount within 15 days will compel my client to file a criminal complaint against you at your risk and cost. [Advocate Signature]

Frequently Asked Questions

Can I send the notice via WhatsApp? +

Yes. Courts now recognize WhatsApp service if the “Blue Tick” is visible. However, you should always use Registered Post as the primary method and use WhatsApp/Email as supplementary modes.

What if I miss the 30-day deadline? +

The delay cannot be condoned for the notice. You must present the cheque again (if within the 3-month validity) to generate a new Return Memo and a fresh 30-day window. However, if you miss the deadline to file the complaint (after the notice period), courts may condone the delay under Section 142(b) if sufficient cause is shown.

Is the “Risk and Cost” clause mandatory? +

No, it is not a statutory requirement, but it is standard legal practice to assert the right to claim litigation expenses in future proceedings.

What is the “Cheque Return Memo”? +

It is the official slip issued by the bank citing the reason for non-payment (e.g., “Funds Insufficient”). This document is the primary evidence of dishonour and its date triggers the limitation period.