Cheque Bounce under Section 138 NI Act – A Criminal Offence in Detail

Cheque Bounce under Section 138 NI Act – A Criminal Offence in Detail

Section 138 of the Negotiable Instruments Act, 1881 deals with the criminal offence of dishonour of a cheque. It penalizes any person who issues a cheque for the discharge of a legally enforceable debt or liability, but the cheque is dishonoured by the bank due to:

1. Insufficient funds
2. Closure of account
3. Payment stopped by drawer
4. Exceeds arrangement with the bank

This section criminalizes the act of cheque dishonour to uphold the credibility of cheques as a mode of payment and maintain trust in commercial and financial transactions.

Essentials to Attract Section 138

For Section 138 to apply, the following conditions must be fulfilled:

1. Cheque must be drawn on an account maintained by the drawer.
2. It must be issued for the discharge of a legally enforceable debt or liability.
3. Cheque must be presented within its validity period (generally 3 months).
4. Cheque must be dishonoured due to insufficient funds or other specified reasons.
5. Legal notice must be issued by the payee to the drawer within 30 days of receiving the return memo.
6. Drawer must fail to make payment within 15 days of receiving the notice.
7. Complaint must be filed within 1 month after the 15-day period expires.

Nature of Offence under Section 138

1. Criminal, but bailable and non-cognizable
2. Tried by Magistrate of First Class
3. Compoundable (can be settled by mutual agreement)
4. Applies to individuals, companies, and their authorized signatories (with vicarious liability under Section 141)

Legal Procedure for Cheque Bounce Case

1. Cheque Dishonour: Bank returns cheque unpaid with return memo.
2. Legal Notice: Issued to the drawer within 30 days from dishonour.
3. 15-Day Waiting Period: Opportunity for drawer to pay.
4. Filing Complaint: If no payment is made, complaint is filed under Section 138.
5. Cognizance by Magistrate: Summons issued to the accused.
6. Trial Begins: Plea recorded; evidence submitted by complainant.
7. Cross-Examination: Accused cross-examines complainant.
8. Defense Evidence: Accused may submit documents/witnesses.
9. Final Arguments: Both sides present arguments.
10. Judgment: Acquittal or Conviction with possible sentence.

Punishment under Section 138

If found guilty, the court may order:

1. Imprisonment: Up to 2 years
2. Fine: Up to twice the cheque amount
3. Or both
4. Compensation: Courts often direct additional payment to the complainant (can include interest or interim relief under Section 143A)

Defences Available to the Accused

1. No legally enforceable debt
2. Cheque was issued as a gift or loan without obligation
3. Cheque was misused or stolen
4. Improper notice or delay in notice
5. Wrongful jurisdiction

Limitations & Exceptions

Section 138 does not apply when:

1. Cheque was issued for donation, charity, or without consideration
2. Debt is time-barred
3. Cheque was not presented within validity
4. Improper legal notice or notice not served

Why Section 138 Matters Today

Cheque bounce cases have become one of the most common types of litigation in Indian courts. Courts are flooded with such matters because of:

1. Increased use of post-dated cheques in business
2. Habitual defaults by borrowers
3. Use of cheque bounce cases as recovery tool in civil debts

Recent Reforms & Judicial Trends

1. Section 143A: Allows courts to order 20% interim compensation during trial.
2. Section 148: Appellate courts can order deposit of minimum 20% of the fine/compensation for appeal.
3. Courts are encouraging settlement & mediation to reduce pendency.
4. Supreme Court has held in multiple rulings that misuse of the provision will be discouraged, and genuine disputes should not be criminalised 

Cheque Bounce Case Trends in India – Ratio & Data

Recent data from the National Judicial Data Grid (NJDG) and NCRB suggests:

1. Over 20 lakh pending cases under Section 138 as of 2024.
2. Cheque bounce cases form 18–20% of total criminal cases in many district courts.
3. Approx. 70% of cases settle before final verdict, showing preference for compounding.

Graph: Filing vs Disposal of Section 138 Cases (2020–2024)

Graph shows a surge in filings but also an increased rate of pre-trial settlements, supported by mediation and Lok Adalat efforts.

Conclusion

Section 138 NI Act serves as a deterrent against wilful defaults and promotes commercial discipline. However, it must be used responsibly — not to harass, but to ensure justice. While it offers an efficient remedy for the complainant, accused persons also have sufficient legal protections if no wrongful intention is found.

Whether you’re a payee facing dishonour or a drawer wrongly accused, a deep understanding of this section ensures that rights are preserved, and obligations are fairly enforced.