Cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1881 constitute one of the largest categories of pending criminal cases in Indian courts. Despite this, most people on either side of a cheque bounce dispute — whether the one who issued the cheque or the one who received it — do not fully understand the process, the timelines, or the consequences.
This article covers the entire Section 138 process from start to finish — what makes a cheque bounce case valid, the mandatory steps before filing, the trial process, punishment, and the available defences.
What Section 138 Actually Says
Section 138 of the Negotiable Instruments Act makes the dishonour of a cheque a criminal offence — punishable with imprisonment up to two years, or a fine up to twice the cheque amount, or both. The provision applies when a cheque given for the discharge of a legally enforceable debt or liability is returned unpaid by the bank for reasons including insufficient funds or "exceeds arrangement."
Three things must be established for a valid Section 138 complaint:
- The cheque was issued for the discharge of a legally enforceable debt or liability
- The cheque was presented to the bank within its validity period (3 months from date)
- The cheque was returned unpaid and the mandatory pre-complaint procedure was followed
A cheque given as a gift, security deposit for a future obligation not yet due, or towards a time-barred debt may not attract Section 138 liability. The debt or liability must be legally enforceable at the time the cheque is issued. This is a frequently litigated issue and a common defence.
The Mandatory Pre-Complaint Timeline — Step by Step
Cheque Presented and Returned
The cheque holder presents the cheque to their bank. The bank returns it unpaid with a memo stating the reason — "insufficient funds," "payment stopped," "account closed," etc. Keep the original returned cheque and the bank's dishonour memo carefully — both are essential evidence.
Send the Demand Notice
Within 30 days of receiving the dishonour memo from the bank, the payee must send a written demand notice to the drawer of the cheque demanding payment of the cheque amount. The notice must be sent by registered post with acknowledgement due to the drawer's last known address. Keep the postal receipts and the tracking acknowledgement.
Wait for Payment
The drawer has 15 days from the date of receipt of the notice to make payment. If payment is made within this period, no criminal complaint can be filed. If payment is not made within 15 days, the cause of action arises.
File the Complaint
The complaint under Section 138 must be filed before the appropriate Magistrate within 30 days of the expiry of the 15-day notice period. This deadline is strict — a delayed complaint requires condonation of delay under Section 142, which the court may or may not grant.
Where to File the Complaint
It is a well settled principle of law that a complaint under Section 138 can be filed at the court within whose jurisdiction any of the following is located: the place where the cheque was drawn, the place where it was presented for payment, the place where the cheque was returned unpaid, or the place where the demand notice was sent or received.
This gives the complainant some flexibility in choosing a convenient court — particularly relevant in disputes between parties in different cities.
The Trial Process
Section 138 cases are tried as summary trials or summons cases depending on the quantum. The process involves the Magistrate taking cognizance, issuing summons to the accused, the accused appearing, filing a reply, examination of complainant's witness (usually the complainant themselves), cross-examination, defence evidence if any, and final arguments before judgment.
It is a well settled principle of law that once the complainant proves the dishonour of the cheque and the sending of the demand notice, a presumption arises under Section 139 of the NI Act that the cheque was issued for a legally enforceable debt. The burden then shifts to the accused to rebut this presumption.
Punishment on Conviction
On conviction under Section 138, the accused faces imprisonment up to two years, or a fine up to twice the cheque amount, or both. Courts frequently impose compensation to the complainant as part of the sentence. The conviction also has implications for the accused's professional and financial standing.
Common Defences in Section 138 Cases
If you are the drawer facing a Section 138 complaint, the following are recognised legal defences that can be raised:
- Cheque not issued for a legally enforceable debt — if the cheque was given as security, towards a time-barred obligation, or as a gift
- Cheque was stolen or obtained by fraud — the drawer did not voluntarily issue it
- Demand notice not properly served — sent to wrong address or not by registered post
- Complaint filed beyond limitation — either the notice was not sent within 30 days of dishonour, or the complaint was not filed within 30 days of expiry of the notice period
- Cheque issued as a blank signed cheque which was subsequently filled in without authority — though this is a difficult defence requiring strong evidence
- Partial payment made within the 15-day notice period — reduces the liability though may not extinguish it entirely depending on the amount
Section 138 cases can be compounded — i.e., settled between the parties — at any stage of the proceedings including during trial or even after conviction if the appellate court permits. Courts actively encourage settlement in cheque bounce cases. A negotiated settlement with payment of the full cheque amount plus agreed compensation is often the most practical resolution for both parties.
A Practical Note on Evidence
If you are the complainant, preserve the following from the outset: the original cheque, the bank's dishonour memo, proof of dispatch of the demand notice (postal receipt + tracking), proof of delivery or attempted delivery, and any written acknowledgement of the debt — agreements, invoices, correspondence. Courts look at the totality of evidence and a well-documented complaint has a significantly better chance of success.