In India, cheque bounce cases have become one of the most common financial disputes, making it essential for businesses, professionals, and individuals to understand the basics of Section 138 of the Negotiable Instruments Act, 1881. This powerful legal provision governs the consequences of cheque dishonour and provides a fast, effective remedy for recovering unpaid dues. Whether you’re a creditor seeking enforcement or a drawer facing a legal notice, knowing how Section 138 works—its timelines, requirements, and legal implications—can help you navigate cheque bounce matters with clarity and confidence.
Basics of Section 138 of the Negotiable Instruments Act, 1881
Section 138 of the Negotiable Instruments Act (NI Act) is one of the most frequently invoked provisions in Indian criminal courts. It deals with the offence of cheque dishonour—a situation where a cheque issued by a person is returned unpaid by the bank. The purpose of this provision is to ensure the credibility of commercial transactions and to promote faith in the banking system.
- What Does Section 138 Cover?
Section 138 makes it a criminal offence if a cheque issued towards a legally enforceable debt or liability is dishonoured due to:
- Insufficient funds, or
- Exceeding the arrangement with the bank.
The law presumes that a cheque is issued for a valid debt unless the accused proves otherwise.
- Essential Ingredients of the Offence
For an offence under Section 138 to be complete, the following conditions must be satisfied:
(a) Issuance of Cheque
The cheque must be issued by the drawer for discharge of a legally enforceable debt or liability.
(b) Presentation of Cheque
The cheque must be presented to the bank within its validity period (currently 3 months from the date of issue).
(c) Dishonour of Cheque
The bank must return the cheque unpaid with a memo stating the reason—commonly “insufficient funds” or “exceeds arrangement”.
(d) Statutory Notice
The payee must issue a written demand notice to the drawer within 30 days of receiving the bank’s return memo.
(e) Failure to Pay Within 15 Days
If the drawer does not make payment within 15 days of receiving the notice, the cause of action arises.
(f) Filing of Complaint
The complaint must be filed within one month from the date the cause of action arises.
- Nature of the Offence
It is a bailable, compoundable, and quasi-criminal offence.
The primary objective is compensation, not imprisonment.
Courts often encourage settlement and compounding at any stage.
- Presumptions Under the NI Act
Sections 118(a) and 139 create strong presumptions in favour of the complainant:
- The cheque is presumed to be issued for consideration.
- The cheque is presumed to be issued towards a legally enforceable debt.
These presumptions are rebuttable, but the burden lies on the accused.
- Common Defences Available to the Accused
While the law favours the complainant, the accused can rebut the presumption by showing:
- No legally enforceable debt existed.
- The cheque was issued as security.
- The cheque was misused or stolen.
- The amount claimed is incorrect or inflated.
- The notice was not served or was defective.
The standard of proof for the accused is preponderance of probabilities, not proof beyond reasonable doubt.
- Punishment Under Section 138
If convicted, the drawer may face:
- Imprisonment up to 2 years, or
- Fine up to twice the cheque amount, or
- Both.
However, courts usually prefer imposing compensation rather than imprisonment.
- Jurisdiction After the 2015 Amendment
The complaint must be filed where:
- The bank branch of the payee (where the cheque is deposited) is located.
This amendment was introduced to prevent harassment of complainants.
- Why Section 138 Matters
Section 138 plays a crucial role in:
- Ensuring trust in cheque-based transactions.
- Providing a speedy remedy to creditors.
- Discouraging wilful defaulters.
- Strengthening commercial discipline.
It is one of the most litigated provisions in India, reflecting its importance in everyday financial dealings.
