How to File or Defend a 138 Cheque Bounce Case in India: A Legal Guide
- Legal Associate
- 7 days ago
- 10 min read
Introduction
In the realm of commercial transactions, cheques are among the most commonly used instruments for payments. Despite the increasing adoption of digital modes of payment, post-dated cheques and regular cheques remain significant in both business and personal financial dealings. However, dishonour of a cheque—commonly known as "cheque bounce"—can lead to serious legal consequences under Section 138 of the Negotiable Instruments Act, 1881.
This blog serves as a comprehensive, legally accurate, and practical guide for individuals, businessmen, financial institutions, and legal professionals on how to file or defend a cheque bounce case under Section 138 of the NI Act in India. It includes real Indian case laws, the complete legal procedure, drafting essentials, defense strategies, and key courtroom tips—structured to suit both complainants and accused persons.
Understanding the Legal Foundation of Section 138 NI Act
What is Section 138 of the Negotiable Instruments Act, 1881?
Section 138 of the NI Act makes dishonour of cheques due to insufficient funds or any other reason (like "account closed" or "payment stopped") a criminal offence punishable by imprisonment up to two years, or fine up to twice the cheque amount, or both.
This provision was introduced through an amendment in 1988 to ensure cheques gain trustworthiness as a negotiable instrument, enhancing confidence in the Indian banking and commercial system.
Essentials to Constitute an Offence Under Section 138
To attract prosecution under Section 138, all of the following conditions must be fulfilled:
Condition | Explanation |
1. Legally Enforceable Debt or Liability | The cheque must be issued in discharge of an existing debt or liability. Cheques issued as gifts, donations, or security do not qualify. |
2. Presentation of Cheque within Validity | The cheque must be presented to the bank within 3 months (or as prescribed) from the date it is drawn. |
3. Dishonour of Cheque | The cheque is returned unpaid by the drawee bank, either due to insufficient funds or other reasons like “account closed”, “payment stopped”, etc. |
4. Issuance of Legal Notice | The payee (complainant) must send a written demand notice to the drawer (accused) within 30 days from the date of cheque return. |
5. Non-payment after Notice | The drawer must fail to pay the cheque amount within 15 days from the date of receiving the notice. Only then does the offence under Section 138 get attracted. |
Failure to meet any one of these conditions can lead to dismissal of the complaint.
Judicial Interpretation of Section 138: Key Supreme Court & High Court Judgments
K. Bhaskaran v. Sankaran Vaidhyan Balan
Held: The offence under Section 138 consists of five components—(1) drawing of the cheque, (2) presentation, (3) return unpaid, (4) demand notice, and (5) failure to pay. The cause of action arises only when all these components are fulfilled.
Dashrath Rupsingh Rathod v. State of Maharashtra
Held: Jurisdiction lies only in the court within whose territory the bank where the drawer maintains the account is located. (Note: Later partially modified.)
Bridgestone India Pvt. Ltd. v. Inderpal Singh
Held: The Supreme Court clarified that even the complainant’s bank location can determine jurisdiction due to the amendment of 2015.
Dalmia Cement (Bharat) Ltd. v. Galaxy Traders & Agencies Ltd
Held: Section 138 is not intended to make a civil dispute criminal, but to impose deterrence against the misuse of cheque facilities.
Nature of Offence Under Section 138: Quasi-Criminal
The proceedings under Section 138 are criminal in nature but have civil implications. The purpose is not merely to punish but to compel repayment. Courts have recognized this unique nature and often emphasize compounding the offence (mutual settlement), especially in the early stages.
Why This Law is So Frequently Used
It offers speedy redressal via summary trial procedure.
It imposes criminal liability for civil default.
It helps lenders, suppliers, and service providers recover dues.
It has deterrent value—no business can afford criminal prosecution over a bounced cheque.
Step-by-Step Procedure to File a 138 Cheque Bounce Case
Filing a case under Section 138 of the Negotiable Instruments Act, 1881 involves a strict statutory timeline and procedural requirements. Failure to comply with these may result in dismissal of the complaint.
Let’s go through the step-by-step legal process of initiating a cheque bounce case in India:
Step 1: Presentation of the Cheque
The first legal step is presenting the cheque to your bank for collection. This should be done within 3 months from the date mentioned on the cheque (as per RBI guidelines amended from time to time).
If the cheque is returned unpaid, the bank will issue a cheque return memo with the specific reason for dishonour. This memo becomes a crucial document in later stages.
📌 Tip: Always preserve the original cheque, cheque return memo, and bank correspondence.
Step 2: Issuing a Legal Demand Notice
Within 30 days of receiving the bank's cheque return memo, the payee (you or your client) must send a demand notice to the drawer of the cheque.
Legal Notice Must Contain:
Particulars of the cheque (number, date, amount)
Reason for dishonour
Clear statement that the cheque was issued in discharge of a legally enforceable debt or liability
A demand for payment within 15 days from the date of receipt of the notice
Consequence of non-payment (legal action under Section 138)
This notice must be sent by registered post/speed post/courier and ideally backed by an Affidavit of Service and postal tracking slip.
📌 Tip: Send the notice to the last known address of the drawer and retain one copy of the notice, along with proof of delivery.
Sample Heading for Notice:
“Legal Notice under Section 138 read with Section 142 of the Negotiable Instruments Act, 1881”
Step 3: Wait for 15 Days from Receipt of Notice
The drawer is given a statutory period of 15 days to make the payment. If they fail to do so within this period, the cause of action arises to file a complaint.
Step 4: Filing of Criminal Complaint (Within 30 Days After Lapse of Notice Period)
Once 15 days have passed without payment, the complaint must be filed in court within the next 30 days.
Documents Required for Filing a 138 Complaint:
Original cheque
Cheque return memo from bank
Copy of legal notice sent
Proof of service of notice (postal receipt, tracking report, acknowledgment)
Affidavit of the complainant (statement on oath)
Vakalatnama (if filed by a lawyer)
Complaint format as per Section 142 of the NI Act
Step 5: Jurisdiction of Court
Jurisdiction under Section 138 is guided by Section 142(2) (after the 2015 amendment), which states that the court shall have jurisdiction where:
The cheque is delivered for collection through an account (complainant’s bank location)
Or where the drawer maintains the account (in certain older cases)
Example: If a person in Navi Mumbai deposits the cheque in his bank located in Vashi, then the court in Vashi has jurisdiction.
Step 6: Preliminary Examination & Issuance of Summons
Once the complaint is filed, the Magistrate will take cognizance and examine the complainant on oath (as per Section 200 CrPC). If the court is satisfied that a prima facie case exists, it will issue summons to the accused.
This is followed by:
Accused’s appearance
Plea recording
Evidence submission
Cross-examination
Final arguments
Judgment
Most 138 cases are conducted as summary trials under Section 143 NI Act for speedier resolution.
Time Limits in 138 Cases (As per Law and Courts)
Stage | Time Limit |
Presentation of cheque | Within 3 months of issue date |
Sending legal notice | Within 30 days of return memo |
Waiting period for drawer's response | 15 days from receipt of notice |
Filing complaint | Within 30 days after expiry of 15-day notice period |
Drafting Tips for Notice and Complaint
Key Elements of Legal Notice-
Address it clearly and formally
Quote cheque number, date, and amount
Assert the legal liability
Include a warning of legal action
Keep the tone professional and firm
Key Elements in Complaint-
Detail the transaction background
Mention cheque details, dishonour reason, and legal notice particulars
Enclose all documentary evidence
Include verification clause and affidavit
Defending a 138 Cheque Bounce Case: Legal Strategies
While Section 138 of the Negotiable Instruments Act, 1881, is a powerful tool for complainants, the accused (drawer of the cheque) also has several valid legal defenses. The Indian judiciary ensures a fair opportunity to defend, especially if the cheque was misused or issued without liability.
Let’s explore key defenses and how to legally quash or defeat a false 138 NI Act case.
Key Legal Defenses in 138 NI Act Cases
1. No Legally Enforceable Debt or Liability
The most critical ingredient under Section 138 is that the cheque must have been issued "in discharge, wholly or in part, of any debt or other liability."
If there was no legal debt, or the cheque was given as a security or gift, the complaint is not maintainable.
2. Cheque Issued as Security
If the drawer issued the cheque as a security (not for payment), and it was misused, then Section 138 will not apply.
3. Cheque Was Post-Dated or Blank When Given
If the drawer can prove that the cheque was handed over blank, and later misused, courts have granted relief in some cases—especially where no debt existed at the time of filling.
However, mere claim of "blank cheque" is not enough—it must be supported by evidence, such as:
Emails/WhatsApp messages
Bank statements
Loan closure records
4. Cheque Presented After 3 Months (Expired)
If the cheque was presented beyond the validity period (usually 3 months), the complaint is not valid.
5. Time-Barred Debt
If the cheque was issued for a time-barred debt (i.e., a debt older than 3 years for which no acknowledgment or payment was made), it cannot be recovered under Section 138.
6. Failure to Send Proper Legal Notice
If the complainant fails to serve a valid legal notice within 30 days or doesn't wait for 15 days before filing the case, the complaint is legally flawed.
The accused may claim the cheque was lost, and the complainant obtained it unlawfully. This must be supported by an FIR or GD entry regarding the lost cheque.
Note: This defense often fails if not timely reported and if the accused didn’t instruct his bank to stop payment.
Best Practices for the Accused to Quash the Case
If the case is false or malicious, the accused may approach the High Court under Section 482 CrPC to quash the proceedings.
Points to Include in a Strong Defense
Get bank statements to show no pending debt.
Gather correspondence records (email, WhatsApp).
Obtain loan closure certificate (if cheque issued post-loan).
If cheque was for security, get agreement copy or acknowledgment.
Record of lost/stolen cheque (FIR if applicable).
Record of stop payment instructions (if any).
Highlight delays or defects in legal notice or complaint.
Real-Life Court Acquittals
SC held that mere issuance of a cheque doesn’t make the accused guilty unless the complainant proves a legally enforceable debt.
Penalties and Punishment under Section 138
Section 138 of the Negotiable Instruments Act, 1881 prescribes criminal punishment for cheque dishonour due to insufficiency of funds or when the amount exceeds the arrangement with the bank. Upon successful conviction, the court may impose:
Imprisonment – Up to two years.
Fine – Which may extend to twice the amount of the cheque.
Or both – Depending on the facts and circumstances of the case.
A conviction under this section carries not only legal consequences but also long-term reputational and financial repercussions, especially for professionals and business entities.
Compounding of Offences under Section 138
Offences under Section 138 are compoundable as per Section 147 of the Negotiable Instruments Act (inserted through the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002). This allows the complainant and the accused to enter into a compromise or settlement at any stage of the proceedings, including during the pendency of appeals.
Legal Precedent:
Meters and Instruments Pvt. Ltd. v. Kanchan Mehta, The Supreme Court emphasized the importance of resolving Section 138 cases through settlement and held that even at the appellate stage, the courts should facilitate compounding where feasible.
Compounding Stages and Cost Guidelines:
In Damodar S. Prabhu v. Sayed Babalal H, the Supreme Court issued structured guidelines to impose graded costs depending on the stage of compounding:
Before filing the complaint: No cost.
Before framing of charge: 10% of the cheque amount.
After framing of charge but before evidence: 15% of the cheque amount.
After recording evidence: 20% of the cheque amount.
This encourages early settlements and reduces the burden on the judiciary.
Role of Lok Adalat and Mediation
In recent years, the judiciary has actively promoted alternate dispute resolution mechanisms such as Lok Adalats and court-annexed mediation to expedite the disposal of cheque bounce matters.
Benefits of Settlement through Lok Adalat:
Fast and cost-effective.
No court fees.
Binding and final award.
No criminal record upon settlement.
Promotes amicable relationships, especially in commercial matters.
These platforms offer an effective way for parties to avoid prolonged litigation, especially in straightforward cheque dishonour disputes.
Important Case Laws on Section 138
A selection of significant Supreme Court decisions that have shaped the interpretation and application of Section 138 is provided below:
K. Bhaskaran v. Sankaran Vaidhyan Balan,
The Court laid down five key ingredients to establish an offence under Section 138:
Drawing of a cheque for the discharge of any legally enforceable debt or liability.
Presentation of the cheque to the bank.
Return of the cheque unpaid by the drawee bank.
Issuance of a legal notice by the payee.
Failure of the drawer to make payment within 15 days of receipt of the notice.
This case helped crystallize the sequence of events that must be satisfied for a valid prosecution.
Dashrath Rupsingh Rathod v. State of Maharashtra,
Initially, the court ruled that jurisdiction to file a complaint lies only where the drawee bank (drawer’s bank) is located. This decision created practical difficulties for complainants.
Procedural Summary of a Section 138 Case
Stage | Description |
Debt Exists | Legally enforceable debt or liability must be shown. |
Cheque Issued | Post-dated or current, and within 3-month validity (as per latest RBI guidelines). |
Dishonour | Cheque returned unpaid with endorsement like "insufficient funds". |
Legal Notice | To be issued within 30 days of return memo from the bank. |
Waiting Period | 15 days for drawer to make payment after receipt of notice. |
Filing Complaint | If no payment is made, complaint to be filed within 30 days after expiry of 15-day period. |
Jurisdiction | Payee’s bank branch jurisdiction is applicable (post-2015 amendment). |
Cognizance by Court | Magistrate takes cognizance, issues summons. |
Bail Application | Accused appears or applies for anticipatory bail. |
Trial | Summary trial procedure adopted under Section 143 of NI Act. |
Verdict | Acquittal or conviction. In case of conviction, options of appeal, revision, or compounding. |
Strategic Advice for Parties
For the Complainant:
Ensure all formalities such as sending the notice and presenting the cheque are completed within prescribed time limits.
Maintain all documentary evidence including loan agreements, emails, bank memos, postal receipts, etc.
Engage an experienced criminal or commercial lawyer who can handle cheque bounce litigation efficiently.
For the Accused:
Respond to the notice promptly—either by making payment or by sending a reply if there's a genuine dispute.
If there is no legal liability or the cheque was misused, collect and preserve evidence to that effect.
File an application for compounding or settlement at the earliest opportunity to minimize legal consequences.
If the case is weak or abusive, consider filing a quashing petition under Section 482 of CrPC.
Conclusion
Section 138 of the Negotiable Instruments Act serves as a powerful legal mechanism to uphold financial discipline and accountability in commercial transactions. Given the quasi-criminal nature of the proceedings, parties must understand the precise legal process, documentation requirements, and available defenses to act effectively.
Complainants must follow statutory timelines strictly and build a robust documentary record, while accused individuals should act quickly to explore all possible defenses or seek an amicable resolution. Legal assistance is crucial at every stage—from notice issuance to trial or compounding—to ensure the best possible outcome.
More Informative blog post: How to File a Cheque Bounce Case in India
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