Cheque bounce cases have become
one of the most common legal disputes in India. Almost every court in the
country deals daily with matters related to Section 138 of the Negotiable
Instruments Act, 1881. From small shopkeepers to large business owners,
many people have either faced a cheque bounce case or are unsure what to do
when a cheque gets dishonoured.
I have seen many people panic the
moment they hear the words “Section 138 notice.” Some believe jail is
guaranteed, while others think the case can be ignored. Both beliefs are wrong.
This blog explains, in simple words, what a cheque bounce case is, how
Section 138 works, the legal procedure, defences, punishment, and the latest
court judgments that every common person should know.
What Is a Cheque Bounce?
A cheque is said to be “bounced”
when a bank refuses to honour it and returns it unpaid. This usually happens
due to:
* Insufficient funds in the
account
* Account closed
* Payment stopped by drawer
* Signature mismatch
* Exceeds arrangement
However, not every bounced cheque
becomes a criminal case. Section 138 applies only when certain legal
conditions are fulfilled.
What Is Section 138 of the Negotiable Instruments Act?
Section 138 NI Act makes
cheque dishonour a criminal offence, provided the cheque was issued for
a legally enforceable debt or liability.
The intention of the law is not
to send people to jail, but to ensure trust in commercial transactions
and protect the payee.
Essential Conditions for Section 138 Case
For a valid cheque bounce case
under Section 138, all the following conditions must be satisfied:
1. The cheque must be issued for
repayment of a legally enforceable debt or liability
2. The cheque must be presented
within its validity period
3. The cheque must be returned
unpaid by the bank
4. The payee must send a legal
demand notice within 30 days of receiving the bank return memo
5. The drawer must fail to make
payment within 15 days of receiving the notice
If even one condition is missing,
the Section 138 case may fail.
Legal Procedure in a Cheque Bounce Case
Step 1: Cheque Dishonour
The bank issues a return memo
stating the reason for dishonour.
Step 2: Legal Notice
A written legal notice must be
sent within 30 days demanding payment of the cheque amount.
Step 3: Waiting Period
The drawer gets 15 days to make
the payment. If payment is made, the matter ends.
Step 4: Filing of Complaint
If payment is not made, a
criminal complaint is filed before the Magistrate within 30 days.
Step 5: Trial
The court records evidence, hears
both sides, and passes judgment.
Punishment Under Section 138
If found guilty, the accused may
face:
* Imprisonment up to 2 years,
or
* Fine up to twice the cheque
amount, or
* Both
In practice, courts prefer compensation
and settlement over imprisonment, especially in first-time cases.
Can a Cheque Bounce Case Be Settled?
Yes. Cheque bounce cases are
compoundable, meaning they can be settled at any stage.
The Supreme Court has repeatedly
encouraged:
* Early settlement
* Mediation
* Payment of compensation instead
of long trials
Settlement saves time, money, and
mental stress for both parties.
Important Defences Available to the Accused
Many people believe that once a
cheque bounces, conviction is automatic. That is not true. Common defences
include:
* Cheque was not issued for
legally enforceable debt
* Cheque was given as security
* Amount already paid partially
or fully
* Cheque misused or stolen
* No proper legal notice served
Each case depends on facts and
evidence, not assumptions.
Latest and Important Supreme Court Judgments
1. Bir Singh v. Mukesh Kumar (2019)
The Supreme Court held that once
a cheque is signed and issued, presumption under Section 139 applies,
even if other details are filled later. The burden shifts to the accused to prove
otherwise.
2. Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2017)
The Court clarified that the primary
object of Section 138 is compensatory, not punitive. Courts should
encourage settlement and avoid unnecessary imprisonment.
3. P. Mohanraj v. Shah Brothers (2021)
It was held that IBC
moratorium applies to Section 138 proceedings against a company, but not
against directors personally.
4. Kalamani Tex v. P. Balasubramanian (2021)
The Supreme Court reiterated that
financial capacity of the complainant need not be proved initially once
cheque issuance is admitted.
5. Sunil Todi v. State of Gujarat (2021)
The Court held that even cheques
issued by directors or authorized signatories can attract liability under
Section 138.
6. In Re: Expeditious Trial of Cases Under Section 138 NI Act (2021–2023)
The Supreme Court issued
continuous directions to:
* Speed up cheque bounce trials
* Use mediation
* Avoid unnecessary adjournments
* Reduce burden on criminal
courts
These directions are now being
followed by lower courts across India.
Is Jail Mandatory in Cheque Bounce Cases?
No. Jail is not mandatory.
Courts usually order:
* Payment of cheque amount
* Additional compensation
* Reasonable fine
Imprisonment is generally imposed only when:
* Accused repeatedly defaults
* There is deliberate
non-compliance
* Court orders are ignored
Practical Advice From Experience
From practical experience, I can
say this clearly:
* Ignoring a legal notice is a
mistake
* Early legal advice saves money
* Settlement is often the best
solution
* Delay weakens both sides
Many cheque bounce cases drag on
for years simply because parties refuse to communicate.
Conclusion
Section 138 of the Negotiable
Instruments Act plays a crucial role in maintaining trust in financial
transactions. While it is a criminal provision, courts have consistently
clarified that its purpose is recovery of money, not punishment.
Understanding the procedure, time
limits, legal rights, and latest judgments can protect you from unnecessary
fear and confusion. Whether you are a complainant or an accused, legal awareness
is your strongest defence.
Cheque bounce cases are serious,
but they are also manageable, if handled correctly and on time.
❓ Frequently Asked Questions (FAQ)
Cheque Bounce Case Under Section 138 NI Act
1. What is a cheque bounce case under Section 138?
A cheque bounce case arises when
a cheque issued for repayment of a legally enforceable debt is dishonoured by
the bank and the drawer fails to make payment even after receiving a legal
notice within the prescribed time.
2. Is cheque bounce a criminal offence in India?
Yes, cheque bounce is a criminal
offence under Section 138 of the Negotiable Instruments Act, 1881.
3. What are the common reasons for cheque bounce?
Common reasons include
insufficient funds, account closed, payment stopped, signature mismatch, or
cheque exceeding arrangement.
4. Is sending a legal notice mandatory in cheque bounce cases?
Yes, sending a legal demand
notice within 30 days of receiving the cheque return memo is mandatory. Without
a valid notice, a Section 138 case is not maintainable.
5. How much time is given to pay after receiving the legal notice?
The drawer of the cheque gets 15
days from the date of receipt of the legal notice to make the payment. If
payment is made within this period, no case can be filed.
6. Can a cheque bounce case be settled?
Yes, cheque bounce cases are
compoundable and can be settled at any stage—before trial, during trial, or
even at the appeal stage.
7. Can a cheque bounce case be filed without a lawyer?
Legally, a person can file a
cheque bounce case without a lawyer. However, due to technical procedures and
timelines, legal assistance is strongly recommended.
8. What if the cheque was given only as security?
If the cheque was issued as
security and not towards a legally enforceable debt, the accused may take this
defence. However, the burden of proof lies on the accused.
9. Can a company director be held liable in a cheque bounce case?
Yes, directors or authorised
signatories responsible for the conduct of the company’s business can be held
liable under Section 138.
10. How long does a cheque bounce case take in court?
There is no fixed time limit.
However, the Supreme Court has directed courts to dispose of cheque bounce
cases expeditiously, preferably within a reasonable time.
11. What happens if the accused ignores court summons?
Ignoring court summons can lead
to issuance of warrants and stricter legal action. It is always advisable to
appear before the court or seek legal remedy.
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