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Legal Reasoning · 5 questions · about 1 min to read

Section 138, Negotiable Instruments Act, 1881

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The passage

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Section 138 of the Negotiable Instruments Act, 1881 creates a criminal offence of dishonour of a cheque. Where a cheque drawn by a person on their account towards discharge of a legally enforceable debt or liability is returned by the bank unpaid due to insufficiency of funds or because the amount exceeds the arrangement made with the bank, the drawer is liable to punishment with imprisonment for up to two years, a fine of up to twice the cheque amount, or both.

For the offence to be established, the payee must first give written notice to the drawer within thirty days of receiving information from the bank that the cheque was dishonoured. The drawer then has fifteen days from receipt of this notice to make payment. If the drawer fails to pay within this period, the payee may file a complaint in the court of a Magistrate within one month of the expiry of the fifteen-day period.

Section 138 applies only where the cheque was given in discharge of a debt or legal liability. A cheque given as a gift or without any underlying obligation is not covered. The Supreme Court has held that the burden of proof shifts to the accused after the payee establishes the initial facts: once a dishonoured cheque is proved, the drawer must show that the cheque was not in discharge of any legally enforceable debt.

  1. Q1. A person gives a post-dated cheque to their landlord as a gift on Diwali. The cheque bounces due to insufficient funds. Is the giver liable under Section 138?

    1. Yes, because any dishonoured cheque triggers liability under Section 138
    2. Yes, if the landlord can show they relied on the cheque
    3. No, Section 138 applies only where the cheque was given in discharge of a debt or legal liability, not as a gift
    4. No, because gifts are not covered by the Negotiable Instruments Act at all
    Show answer

    Answer: C. No, Section 138 applies only where the cheque was given in discharge of a debt or legal liability, not as a gift

    The passage states: 'Section 138 applies only where the cheque was given in discharge of a debt or legal liability. A cheque given as a gift or without any underlying obligation is not covered.'

  2. Q2. A cheque issued by A to B bounces. B receives notice from the bank on June 1. B sends a written notice to A on June 25. A receives it on June 28. When does the fifteen-day period for A to make payment expire?

    1. July 10
    2. July 13
    3. July 15
    4. July 20
    Show answer

    Answer: B. July 13

    The 15-day period runs from A's receipt of the notice (June 28). 15 days from June 28 = July 13.

  3. Q3. After receiving a notice of dishonour, the drawer has fifteen days to make payment. If they fail, the payee must file a complaint in the Magistrate’s court within:

    1. Fifteen days of the expiry of the fifteen-day payment period
    2. One month of the expiry of the fifteen-day payment period
    3. Three months of the expiry of the fifteen-day payment period
    4. One year of the cheque being dishonoured
    Show answer

    Answer: B. One month of the expiry of the fifteen-day payment period

    The passage states: 'the payee may file a complaint in the court of a Magistrate within one month of the expiry of the fifteen-day period.'

  4. Q4. The Supreme Court has held that once a dishonoured cheque is proved, the burden of proof shifts to:

    1. The payee, to prove the specific amount of the debt
    2. The bank, to explain why the cheque was not honoured
    3. The drawer, to show the cheque was not in discharge of any legally enforceable debt
    4. The court, to determine whether the debt was enforceable
    Show answer

    Answer: C. The drawer, to show the cheque was not in discharge of any legally enforceable debt

    The passage states: 'the burden of proof shifts to the accused after the payee establishes the initial facts: once a dishonoured cheque is proved, the drawer must show that the cheque was not in discharge of any legally enforceable debt.'

  5. Q5. The maximum punishment for the offence under Section 138 is:

    1. Imprisonment for up to one year and a fine of the cheque amount
    2. Imprisonment for up to two years, a fine of up to twice the cheque amount, or both
    3. Imprisonment for up to three years and a mandatory fine
    4. A fine of up to the cheque amount with no imprisonment
    Show answer

    Answer: B. Imprisonment for up to two years, a fine of up to twice the cheque amount, or both

    The passage states: 'imprisonment for up to two years, a fine of up to twice the cheque amount, or both.'

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