Cheque Dishonour Section 138: A CAIIB BRBL Guide (2026)

For any CAIIB candidate revising Banking Regulations and Business Laws, cheque dishonour section 138 questions turn up in almost every recent paper, and for good reason — bankers deal with bounced cheques every single working day. This guide breaks down the ingredients of the offence, the timelines a bank must track, and the exact drafting steps a branch official signs off on before a complaint reaches court.

📜 What Section 138 of the Negotiable Instruments Act Actually Punishes

Section 138 makes it a criminal offence when a cheque drawn on an account is returned unpaid because the balance is insufficient, or because the amount exceeds an arrangement agreed with the bank. The provision only bites when the cheque was issued for the discharge, in whole or in part, of a legally enforceable debt or other liability — a cheque given as a gift, for example, falls outside its scope entirely. This link to enforceable liability is why examiners keep tying Section 138 questions back to the general principles of contract, since a cheque that fails the tests of a valid, lawful consideration under the Indian Contract Act, 1872 cannot support a criminal complaint either. The section presumes the drawer's dishonesty once dishonour is shown, but that presumption is rebuttable, and a large share of CAIIB case-study questions test exactly where the burden shifts. Banks are expected to record the return reason precisely on the cheque return memo, because the wording used there becomes the foundation of the complainant's cause of action.

⏱️ The Three Timelines Every Banker Must Get Right

Section 138 practice collapses into three statutory clocks, and examiners love testing the exact number of days at each stage. First, the cheque must be presented to the bank within its period of validity, currently three months from the date on the instrument. Second, once the cheque is returned unpaid, the payee must issue a written demand notice to the drawer within thirty days of receiving information about the dishonour from the bank. Third, the drawer gets fifteen days from receipt of that notice to make payment; only if payment is not made within this window does a cause of action arise, and the payee then has one month from the expiry of the fifteen days to file the criminal complaint. Missing any one of these windows can be fatal to the case, which is why relationship managers are trained to flag dishonoured cheques the same day they are returned rather than batching them for later.

⚠️ Common Mistake: Candidates often assume the thirty-day notice period runs from the date printed on the cheque return memo. It actually runs from the date the payee receives intimation of dishonour — a subtle distinction examiners frequently exploit in MCQs.

🏦 The Banker's Practical Role in a Dishonour Case

When a bank returns a cheque, it is not a passive bystander — it is effectively acting as the collecting banker's agent for the payee, a relationship that traces back to the same agency principles covered under Contract of Agency. The branch must issue a return memo stating the precise reason code (such as "funds insufficient" or "exceeds arrangement"), retain a certified copy of the cheque and the memo for evidentiary purposes, and be ready to produce a certificate under the Bankers' Books Evidence Act if the matter goes to trial. Many banks also flag repeat dishonour accounts internally, since a pattern of bounced cheques is a red flag that overlaps with credit monitoring and, in secured-lending files, may eventually intersect with charge-related documentation such as the entries tracked under Creation, Registration and Satisfaction of charges. Getting the return memo wording right is not a clerical afterthought — courts have dismissed complaints solely because the memo's reason code was ambiguous or inconsistent with the later demand notice.

💡 Exam Tip: If a question asks "who bears the burden of proving the cheque was not issued for a debt," remember the presumption under Section 139 favours the holder — the drawer must rebut it, not the other way round.

📊 Section 138 Complaint vs Other Recovery Routes

CAIIB scenario questions often ask a candidate to pick the fastest or most appropriate remedy for a dishonoured cheque. The table below lines up the criminal complaint route against the two remedies bankers most often confuse it with.

The interim compensation power under Section 143A, capped at 20% of the cheque amount, and the post-conviction compensation under Section 148, capped at 20% of the fine or sentence, are frequently tested add-ons that examiners layer onto basic Section 138 questions. Knowing which section governs which stage — pre-conviction versus post-conviction — is often the difference between a correct and an incorrect option in a four-mark case study.

🧾 Drafting the Notice and Filing the Complaint

The statutory demand notice must be in writing, must be sent to the correct registered or last known address of the drawer, and must clearly state the cheque number, date, amount, and the fact of dishonour along with a demand for payment within fifteen days. Banks that also handle governance-linked accounts — say, of a private limited company — need to cross-check who is authorised to receive such notices, which loops back to the rules on office-bearers and registered addresses discussed under Membership of Company. Once the fifteen-day window lapses without payment, the complaint must be filed within one month, naming the drawer and, where the cheque was issued by a company, every officer in charge of its affairs at the relevant time. Filing late without a condonation application is one of the most common reasons genuine complaints get thrown out at the threshold stage.

For related exam-relevant reading on how other cross-cutting statutes intersect with day-to-day banking compliance, see our notes on indemnity and guarantee contracts and on the Banking Regulation Act 1949, both of which show up alongside Section 138 in mixed BRBL case studies. If your revision plan also touches Advanced Bank Management, the parallel note on NBFC scale based regulation is worth pairing with this one, since examiners sometimes ask how NBFC-issued instruments are treated differently from bank cheques for Section 138 purposes.

📌 Remember: A post-dated cheque only attracts Section 138 once its date arrives and it is presented and dishonoured — presenting it early does not trigger the offence.

🏛️ How Banks Support the Broader Governance Framework

Cheque dishonour data doesn't sit in isolation — it feeds into a bank's internal risk dashboards and, at a policy level, into the way regulators think about the organisation and supervision of banking companies more broadly, a theme covered in depth under Control Over Organisation of Banks. The Reserve Bank of India has periodically pushed courts and banks toward faster disposal of cheque bounce cases, including through the Cheque Truncation System, which reduces physical presentation delays and thereby tightens the dishonour timeline itself. You can read RBI's own framework documents on payment and settlement systems at rbi.org.in for the latest circulars on cheque clearing and truncation norms. For candidates who want the full statutory text side by side with amendment history, our BRBL exam guides hub collects every related article in one place.

🧠 Practice MCQs: Cheque Dishonour Under Section 138

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Frequently Asked Questions

Mastering the interlocking timelines of Section 138 is one of the highest-yield investments a CAIIB BRBL candidate can make, since it recurs across both objective and case-study questions. Put this framework into practice with a full-length mock at iibf.store/course/caiib and track how many of these timeline traps you can spot on your first attempt.