A cheque is commonly used in India for payments relating to loans, business transactions, purchases, rent, services and other financial obligations. When a cheque is returned unpaid, the consequences can go beyond a simple banking transaction.
Section 138 of the Negotiable Instruments Act, 1881 makes certain cheque dishonours a criminal offence when the statutory conditions are satisfied. The provision applies where a cheque issued for the discharge, wholly or partly, of a legally enforceable debt or other liability is returned unpaid for specified reasons and the drawer fails to make payment after receiving the required statutory notice.
A cheque bounce does not automatically mean that Section 138 has been committed. The requirements of the law and the prescribed timeline must be followed.
What Is a Cheque Bounce?
A cheque bounce, or cheque dishonour, occurs when a bank returns a cheque unpaid.
Common reasons can include:
- Insufficient funds
- Amount exceeding the arrangement with the bank
- Stop-payment instructions, depending on the circumstances
- Account-related issues
- Signature or technical problems
- Other reasons recorded in the bank’s return memo
Section 138 specifically addresses dishonour in the circumstances covered by the statutory provision, particularly where the cheque is issued towards a legally enforceable debt or liability.
Therefore, not every returned cheque automatically creates liability under Section 138.
What Is Section 138 of the Negotiable Instruments Act?
Section 138 deals with dishonour of a cheque for insufficiency of funds or where the cheque amount exceeds the arrangement made with the bank.
If the statutory requirements are fulfilled, the drawer may face:
- Imprisonment of up to two years
- Fine of up to twice the amount of the cheque
- Both imprisonment and fine
The section also contains specific conditions relating to presentation of the cheque, statutory notice and payment after notice.
When Does Section 138 Apply?
Broadly, the following conditions need to be satisfied.
- A cheque must have been issued
The drawer must have drawn a cheque on an account maintained with a bank.
- It must relate to a legally enforceable debt or liability
The cheque must have been issued towards payment of the whole or part of a legally enforceable debt or other liability.
This is an important requirement.
The Supreme Court has explained that Section 138 is linked to a legally enforceable debt or liability. A cheque issued merely as an advance where the underlying transaction does not ultimately create such a liability may raise different legal issues.
- The cheque must be presented within the applicable validity period
Section 138 refers to presentation within six months from the date of the cheque or within its validity period, whichever is earlier. However, RBI directions have reduced the banking presentation period to three months from the date of the instrument for cheques dated on or after April 1, 2012.
For practical purposes, a cheque should therefore be deposited well within its current banking validity period.
- The cheque must be returned unpaid
The bank must return the cheque unpaid for a reason covered by Section 138.
The bank’s cheque return memo is an important document because it records the reason for dishonour.
- Statutory notice must be issued
The payee or holder in due course must make a written demand for payment within 30 days of receiving information from the bank regarding the dishonour.
- Drawer must fail to pay within 15 days
The drawer gets 15 days from receipt of the statutory notice to make payment of the cheque amount.
If the drawer does not pay within this period, the statutory conditions for pursuing a Section 138 complaint can arise.
Section 138 Cheque Bounce Timeline
The timeline is one of the most important aspects of a cheque-bounce case.
| Stage | Time limit |
| Cheque presented | Within its applicable validity period |
| Bank returns cheque unpaid | Bank issues return information/memo |
| Statutory demand notice | Within 30 days of receiving dishonour information |
| Drawer gets time to pay | 15 days from receipt of notice |
| Cause to pursue complaint | Generally arises after failure to pay within the 15-day period |
| Complaint | Subject to Section 142’s limitation requirements |
The Supreme Court has repeatedly recognised these statutory ingredients and timelines.
Simple Example
Suppose:
- Cheque amount = ₹2 lakh
- Bank dishonours cheque on June 1
- Payee receives bank information on June 2
- Statutory notice should generally be issued within 30 days from June 2
- Drawer receives the notice on June 10
The drawer then has 15 days from receipt of the notice to make the required payment.
If payment is not made within that period, the payee can consider the next legal step subject to the limitation and jurisdiction requirements.
What Is a Statutory Legal Notice?
A Section 138 notice is a written demand requiring the drawer to pay the cheque amount after dishonour.
A properly prepared notice generally identifies:
- Drawer
- Payee
- Cheque number
- Cheque date
- Cheque amount
- Bank details
- Date of presentation
- Date/reason for dishonour
- Underlying debt or liability
- Demand for payment
- Statutory reference
- Consequence of non-payment
The notice should clearly demand payment of the cheque amount and comply with the statutory requirements.
Because mistakes in notice drafting can affect later proceedings, professional legal assistance can be useful in disputed or high-value cases.
What Happens If the Drawer Pays After Receiving Notice?
If the drawer pays the required cheque amount within the statutory 15-day period after receipt of the notice, the offence under Section 138 does not arise on that dishonour in the manner contemplated by the provision.
The statutory notice therefore gives the drawer an opportunity to make payment before criminal proceedings are pursued.
What Happens If the Drawer Does Not Pay?
If the drawer does not make the required payment within the 15-day period, the payee can initiate a complaint under Section 138, subject to Section 142 and other applicable procedural requirements.
The matter is dealt with by the criminal court having the appropriate jurisdiction.
Section 143 provides that offences under the relevant chapter are to be tried by a Judicial Magistrate First Class or Metropolitan Magistrate, with provisions for summary trial applying as specified in the Act.
Where Is a Section 138 Complaint Filed?
The territorial jurisdiction for cheque-bounce cases is governed by Section 142(2) of the Negotiable Instruments Act.
Broadly, jurisdiction can depend on where the cheque was delivered for collection through an account or presented for payment, as provided by the statutory provision.
The Act also contains specific rules for cases involving presentation through bank accounts and situations involving direct presentation to the drawee bank.
Because jurisdiction is technical and depends on the facts, the complainant should verify the correct court before filing.
What Is the Presumption Under Section 139?
Section 139 creates an important statutory presumption.
It provides that, unless the contrary is proved, the holder of a cheque is presumed to have received it for the discharge, wholly or partly, of a debt or other liability.
This does not mean that the accused automatically loses the case.
The Supreme Court has explained that the presumption can be rebutted and that the accused can rely on evidence and circumstances to establish a probable defence.
Can the Accused Defend a Cheque-Bounce Case?
Yes.
The drawer can contest the allegations and raise legally recognised defences depending on the facts.
Possible issues can include:
- No legally enforceable debt
- Cheque was not issued for the alleged liability
- Payment had already been made
- Amount was not legally due
- Material facts concerning the transaction are disputed
- Statutory notice requirements were not satisfied
- Complaint was filed beyond the applicable limitation without legally sufficient grounds
- Jurisdictional objection
- Signature/issuance dispute, where legally relevant
- Other evidence rebutting the statutory presumption
The defence must be assessed on the facts and evidence of the individual case.
Is a Blank Signed Cheque Covered by Section 138?
A common dispute concerns a signed cheque that was subsequently filled in by another person.
The legal effect depends on the facts, including the circumstances in which the cheque was issued and whether the statutory requirements are otherwise satisfied.
A person should not assume that calling a cheque “blank” automatically defeats a Section 138 case.
Similarly, merely producing a cheque does not eliminate the requirement that the underlying statutory conditions be established.
What If the Cheque Was Issued as Security?
“Security cheque” is another frequently disputed issue.
Calling a cheque a security cheque does not by itself resolve the Section 138 question.
The key issue can include whether a legally enforceable debt or liability existed when the cheque was presented and whether the cheque was intended to discharge that liability.
The Supreme Court has considered cases involving security cheques and emphasised that the underlying liability and surrounding facts must be examined.
Therefore, the phrase “security cheque” should not be treated as an automatic defence or automatic ground for prosecution.
What If the Cheque Was Given as an Advance?
An advance cheque can raise a different legal question.
The Supreme Court has held that where a cheque is issued as advance payment and the underlying transaction is cancelled or does not proceed in a manner that creates a legally enforceable liability, Section 138 may not be attracted simply because the cheque was dishonoured.
The actual agreement and circumstances must therefore be examined.
Can Stop Payment Lead to a Cheque-Bounce Case?
A stop-payment instruction does not automatically eliminate Section 138 liability.
The relevant question is whether the statutory requirements of Section 138 are satisfied, including whether the cheque was issued towards a legally enforceable debt or liability.
The exact reason for dishonour and the underlying transaction should be examined before reaching a conclusion.
Penalty for Cheque Bounce Under Section 138
If a Section 138 offence is established, the statutory punishment can include:
Imprisonment up to 2 years, or fine up to twice the cheque amount, or both.
The maximum fine is not automatically imposed in every case.
The court determines the appropriate consequence based on the applicable law and facts.
Interim Compensation
Section 143A permits the court, in specified circumstances, to order the drawer to pay interim compensation of up to 20% of the cheque amount.
The provision applies in the circumstances specified in the section, including where the accused pleads not guilty in a summary trial or summons case, or upon framing of charge in another case.
The section also specifies timelines for payment and provides for repayment with interest in the event of acquittal, subject to the statutory conditions.
Compensation and Settlement
Cheque-bounce cases are frequently resolved through settlement, depending on the circumstances and willingness of the parties.
A settlement may involve:
- Payment of the cheque amount
- Interest
- Litigation expenses
- An agreed additional settlement amount
- Withdrawal/closure of proceedings in accordance with the applicable legal procedure
Settlement terms should be documented carefully.
Do not simply accept a verbal promise that the case will be withdrawn later.
Documents Required for a Cheque-Bounce Case
A complainant should generally preserve:
- Original cheque
- Cheque return memo
- Bank statement, where relevant
- Invoice or agreement
- Loan document, if applicable
- Proof of the underlying transaction
- Payment records
- Legal notice
- Postal receipt
- Tracking report
- Proof of delivery/refusal, where available
- Replies received from the drawer
- Relevant emails or messages
The exact evidence required depends on the dispute.
Step-by-Step: How to File a Cheque-Bounce Case
Step 1: Present the cheque
Present the cheque within its applicable validity period.
Step 2: Obtain the return memo
If the cheque is dishonoured, obtain the bank’s return memo showing the reason.
Step 3: Send the statutory notice
Send a written demand notice within 30 days of receiving information about the dishonour.
Step 4: Wait for the statutory period
The drawer has 15 days after receipt of the notice to make payment.
Step 5: Prepare the complaint
If payment is not made, prepare the complaint under Section 138 read with the applicable provisions of Section 142.
Step 6: File before the competent court
File before the court having the legally applicable territorial jurisdiction.
Step 7: Attend proceedings
The court will deal with the complaint according to the statutory procedure.
Step 8: Preserve all evidence
Keep the original cheque, bank documents, notice and proof of service safely.
Section 138 vs Civil Recovery
A Section 138 proceeding is a criminal proceeding arising from cheque dishonour, while the underlying debt can also have civil-law implications.
The Supreme Court has described Section 138 as a provision that combines criminal consequences with a compensatory objective relating to cheque dishonour.
Depending on the facts, a creditor may have other legal remedies for recovery of money.
The availability and interaction of remedies should be examined by a lawyer before multiple proceedings are initiated.
What If the Cheque Amount Is Partially Paid?
Suppose:
- Original cheque = ₹5 lakh
- Drawer pays ₹2 lakh before the cheque is presented
- ₹3 lakh remains legally due
The treatment of the cheque and the remaining liability depends on the documentation and circumstances.
Do not assume that a cheque automatically remains enforceable for the full original amount after partial payment. Keep clear records of all payments and obtain appropriate legal advice before presenting the cheque or issuing a statutory notice.
What If the Cheque Is Lost?
If the original cheque is lost, immediately inform the bank and preserve evidence concerning the loss.
If a Section 138 proceeding is contemplated, the evidentiary and procedural consequences can be more complicated because the cheque and bank-return documents may be important.
A lawyer should be consulted before taking further action.
Common Mistakes in Cheque-Bounce Cases
- Missing the 30-day notice deadline
The statutory notice must generally be issued within 30 days of receiving information about dishonour.
- Waiting too long to present the cheque
RBI’s banking rule generally limits cheque presentation to three months from the date of the instrument.
- Not keeping the return memo
The bank’s return memo is important evidence.
- Sending an incomplete notice
The notice should clearly identify the cheque and demand payment of the cheque amount.
- Ignoring the underlying debt
Section 138 concerns a cheque issued towards a legally enforceable debt or liability. The underlying transaction is therefore important.
- Filing in the wrong court
Territorial jurisdiction rules under Section 142 need to be checked carefully.
- Assuming every cheque bounce is criminal
A bank return by itself does not establish a Section 138 offence. The statutory conditions must be satisfied.
- Ignoring limitation
The complaint must comply with the applicable limitation provisions under Section 142.
Cheque Bounce Case: Quick Timeline
Cheque issued
↓
Cheque presented within applicable validity
↓
Cheque dishonoured
↓
Bank return information received
↓
Statutory notice within 30 days
↓
Drawer gets 15 days after receipt
↓
Payment made → Section 138 prosecution does not arise from that default
No payment → complaint may be filed subject to Section 142 and applicable procedure
Frequently Asked Questions
What is Section 138 of the Negotiable Instruments Act?
Section 138 makes certain dishonours of cheques issued towards a legally enforceable debt or liability an offence when the statutory conditions are satisfied. The maximum punishment is imprisonment up to two years, fine up to twice the cheque amount, or both.
How many days do I have to send a cheque-bounce notice?
The payee or holder in due course generally has 30 days from receiving information about the cheque’s dishonour from the bank to issue the statutory written demand notice.
How long does the drawer get after receiving the notice?
The drawer gets 15 days from receipt of the statutory notice to make payment of the cheque amount.
Is cheque bounce a criminal offence in India?
A cheque dishonour can constitute a criminal offence under Section 138 when all the statutory requirements are fulfilled. A mere bank return does not automatically establish the offence.
What is the punishment for cheque bounce?
The punishment under Section 138 can extend to two years’ imprisonment, a fine up to twice the cheque amount, or both.
How long is a cheque valid in India?
For banking purposes, RBI directions require banks not to make payment of cheques presented beyond three months from the date of the instrument.
Can a security cheque result in a Section 138 case?
It can, depending on the facts. The label “security cheque” by itself does not determine the outcome. The underlying legally enforceable liability and circumstances of presentation must be examined.
Can a blank cheque lead to a cheque-bounce case?
The fact that a cheque was initially blank does not by itself determine whether Section 138 applies. The circumstances of issuance, authority to fill in the cheque, underlying liability and other evidence can become relevant.
Can I file a civil case along with a cheque-bounce case?
The underlying transaction may give rise to other legal remedies, but whether parallel proceedings are appropriate depends on the facts and applicable law. Legal advice should be obtained before filing multiple proceedings.
What happens if the drawer pays after receiving the legal notice?
If the drawer pays the cheque amount within the statutory 15-day period after receipt of the notice, the offence contemplated by Section 138 does not arise from that dishonour in the ordinary course.
Can a cheque-bounce case be settled?
Yes, cheque-bounce disputes can be settled in appropriate circumstances. The settlement should be properly documented and the legal proceedings dealt with according to the applicable procedure.
Conclusion
A cheque bounce under Section 138 of the Negotiable Instruments Act, 1881 is subject to a specific legal process. The key sequence is:
Cheque issued for legally enforceable debt → cheque presented within validity → dishonour → written notice within 30 days → 15-day payment period → complaint if payment is not made, subject to Section 142.
The most important practical points are to preserve the original cheque and bank return memo, meet the notice deadline, document the underlying debt, verify jurisdiction and comply with the limitation period.
Because a missed statutory deadline can affect the ability to pursue a Section 138 complaint, anyone dealing with a substantial or disputed cheque should obtain advice from a qualified lawyer promptly.