Section 138 cheque bounce is one of the most-tested and most-searched topics in Indian law. These AIBE 22 notes explain how the Negotiable Instruments Act, 1881 (NI Act), the law governing cheques, promissory notes and bills of exchange, treats a bounced cheque. Legal terms are explained in plain words, so the notes also help anyone holding a dishonoured cheque.
What Is Section 138 Cheque Bounce?
A cheque is “dishonoured” when the bank returns it unpaid. Section 138 turns certain dishonours into a criminal offence, but only if the cheque was for a legally enforceable debt (money truly owed) and the dishonour was caused by insufficient funds or because the amount exceeds what the account allows.
Essential Ingredients of Section 138
- The cheque was drawn on the drawer’s account for paying a debt or liability.
- It was presented to the bank within three months of its date, or within its validity, whichever is earlier.
- The bank returned it unpaid.
- The payee gave a written notice to the drawer within 30 days of receiving information about the return.
- The drawer failed to pay within 15 days of receiving the notice.
All five must be met. Missing one weakens the case.
Cheque Bounce Timeline
Cheque presented (within 3 months) → Bank returns it unpaid
→ Notice to drawer (within 30 days) → Drawer has 15 days to pay
→ Complaint filed (within 1 month after the 15 days)
→ Summary trial (aim: 6 months)
Key Sections of the NI Act
| Section | What it covers |
|---|---|
| 118(a) | Presumption that a negotiable instrument was made for consideration |
| 138 | The offence of dishonour for insufficiency of funds |
| 139 | Presumption that the holder received the cheque for a debt or liability |
| 140 | No defence that the drawer did not expect dishonour |
| 141 | Offences by companies, with liability on persons in charge |
| 142 | Complaint rules: in writing, one-month limit, court and jurisdiction |
| 143 | Summary trial, with a target of six months |
| 143A | Interim compensation of up to 20% of the cheque amount |
| 145, 146 | Evidence on affidavit; bank’s return slip as prima facie proof |
| 147 | Offence is compoundable (can be settled) |
| 148 | Deposit of at least 20% during appeal |
A presumption means the court assumes something is true until the other side disproves it.
Punishment and Remedies
- Penalty: imprisonment up to two years, or a fine up to twice the cheque amount, or both.
- Interim compensation (Section 143A): the court may order the drawer to pay up to 20% of the cheque amount during the trial, within 60 days, extendable by 30. If the drawer is acquitted, the complainant repays it with interest.
- Appeal (Section 148): an appellant must deposit at least 20% of the fine or compensation awarded by the trial court.
- Settlement: Section 147 allows compounding, so parties can settle.
- Civil option: a payee can also sue to recover the money, separately from the criminal case.
The offence is generally treated as bailable and non-cognizable (police cannot arrest without a warrant). Trial follows the summary trial provisions, now in the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), which replaced the CrPC.
Court and Jurisdiction
The complaint must be in writing by the payee or holder in due course, and made before a Metropolitan Magistrate or Judicial Magistrate of the First Class. Under Section 142, for cheques delivered for collection through an account, the court is generally the one where the payee’s bank branch is located. The court may take up a late complaint if the complainant shows sufficient cause.
Common Defences
- There was no legally enforceable debt, which tries to rebut the presumption.
- The notice was defective, late or not properly served.
- The cheque was presented after its validity period.
- The complaint was filed beyond the one-month limit.
Recent Amendments
- 2002: raised the maximum jail term to two years, added summary trial and compounding.
- 2015: added the jurisdiction rules in Section 142.
- 2018: added interim compensation (Section 143A) and the appeal deposit (Section 148), effective 1 September 2018.
FAQs
Up to two years, or a fine up to twice the cheque amount, or both.
Yes, within 30 days of learning the cheque was returned.
15 days from receiving the notice.
One month after the 15 days end.
Yes, the offence is compoundable under Section 147.
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