Section 138 NI Act: Complete Guide to Cheque Bounce Cases in India

Section 138 of the Negotiable Instruments Act 1881 makes the dishonour of a cheque a criminal offence, punishable with imprisonment of up to two years, a fine of up to twice the amount of the cheque, or both. It does so only where a tightly defined sequence of steps has been followed within fixed deadlines. A complaint filed on that sequence proceeds on its merits; a complaint that misses a date by a day is liable to fail on that ground alone.

This guide sets out the ingredients of the offence, the mandatory timeline, the court and its territorial jurisdiction, the defences, interim compensation and the appellate deposit, and compounding.

The ingredients of the offence

The provision was inserted by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act 1988 to sustain confidence in cheques as an instrument of commercial payment. It does not criminalise every bounced cheque. Each of the following is a precondition the complainant must satisfy.

A legally enforceable debt or liability. The cheque must have been drawn to discharge, in whole or in part, a debt or other liability that is legally enforceable. A post-dated cheque qualifies, and so may a cheque given as security where the liability has fallen due when it is presented; a cheque given as a gift does not, because there is no debt behind it.

Presentation within validity. Proviso (a) to Section 138 requires presentation within six months of the date on which the cheque is drawn, or within its period of validity, whichever is earlier. Since 1 April 2012 the Reserve Bank of India has directed banks not to pay a cheque presented more than three months from the date of the instrument — a rule now carried in the RBI's Know Your Customer Directions of 28 November 2025 (for commercial banks, paragraph 67 of the Commercial Banks – Know Your Customer Directions 2025) — so three months is the operative period.

Dishonour on a specified ground. The bank must have returned the cheque unpaid because the funds in the account are insufficient, or because the amount exceeds the arrangement made with the bank.

Once those facts and the drawer's signature are established, Section 139 requires the court to presume that the holder received the cheque for the discharge of a legally enforceable debt or liability. The accused may rebut that presumption on the preponderance of probabilities, as explained in the note on rebutting the Section 139 presumption.

The mandatory timeline

The offence is not complete on dishonour alone. It crystallises only through a fixed sequence of notice and default.

If the drawer pays within the 15 days, no offence arises. If he does not, the cause of action accrues on the expiry of that period, and the one-month filing window runs from then. The proviso to Section 142(1)(b) allows the court to take cognizance of a later complaint if the complainant shows sufficient cause for not filing in time, but that is an indulgence to be applied for, not a second deadline. Prompt action on receiving a return memo therefore matters far more in a Section 138 matter than in ordinary civil recovery.

The court and territorial jurisdiction

Under Section 142(1)(c), no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class may try the offence, and Section 143 applies the summary-trial procedure so far as may be, with an endeavour under Section 143(3) to conclude the trial within six months of the filing of the complaint.

Territorial jurisdiction is fixed by Section 142(2), inserted by the Negotiable Instruments (Amendment) Act 2015:

• Where the cheque is delivered for collection through an account, the complaint lies before the court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains that account is situated.
• Where the cheque is presented for payment otherwise than through an account, it lies before the court within whose jurisdiction the branch of the drawee bank where the drawer maintains the account is situated.
• A cheque delivered for collection at any branch of the payee's bank is deemed to have been delivered to the branch where the payee maintains the account.

Before the 2015 amendment, jurisdiction had for a period been confined to the place where the drawee bank dishonoured the cheque; Section 142(2) displaced that position. Section 142A, inserted at the same time, validated the transfer of pending complaints to the court identified on the new basis, requires later complaints against the same drawer to be filed before the court where the first complaint is pending, and provides for transfer where several are pending in different courts.

Where the drawer is a company

Section 141 extends liability to every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business. It is settled that the complaint must specifically aver that role for each individual accused, and that the company itself must be arraigned as an accused. For a director who holds no office that itself imports control, specific averments about the part he played in the conduct of the company's business are what keep him in the case. The rules are set out in the note on Section 141 director liability.

Defences available to the accused

The defences most commonly raised are:

• that there was no legally enforceable debt — for instance, that the cheque was given as security for a liability that had not fallen due when it was presented;
• that the demand notice was not properly served, was issued out of time, or demanded an amount other than the cheque amount;
• that the complaint was filed beyond the one-month period in Section 142(1)(b) without sufficient cause being shown;
• that the court lacks territorial jurisdiction under Section 142(2);
• in a company matter, that the individual accused was not in charge of the business at the relevant time.

Defences on the calendar and on jurisdiction go to maintainability. A defence on the debt rebuts the Section 139 presumption, either through the accused's own evidence or out of the complainant's material, and the standard is the preponderance of probabilities, not proof beyond reasonable doubt.

Interim compensation and the appellate deposit

The Negotiable Instruments (Amendment) Act 2018 added two provisions, both in force from 1 September 2018 and both directed at delay in the disposal of cheque cases.

Section 143A allows the trial court to direct the drawer to pay the complainant interim compensation of up to 20 per cent of the cheque amount — in a summary trial or a summons case after a plea of not guilty, and in any other case on framing of charge. The power is discretionary, the 20 per cent is a ceiling, and the amount is repayable with interest if the drawer is acquitted, so a complainant should treat it as provisional rather than as a recovery. The mechanics are covered in the note on Section 143A interim compensation.

Section 148 allows the appellate court, in an appeal by a convicted drawer, to direct a deposit of a minimum of 20 per cent of the fine or compensation awarded by the trial court, in addition to any interim compensation already paid.

Compounding and settlement

Section 147 makes every offence under the Act compoundable, so the parties can settle the dispute at any stage of the proceedings, including during appeal. The compounding is recorded by the court on the parties' application. A settlement usually involves payment of the cheque amount, with any interest or costs the parties agree; where interim compensation under Section 143A has already been paid, the settlement should account for it expressly.

Building the record from the start

Contested matters, and particularly large-value ones, are fought on every available ground — territorial jurisdiction, the existence and quantum of the underlying debt, and the role of each accused. A complainant should assemble from the outset the evidence of the underlying transaction, the communication trail with the drawer, and the bank records of presentation and dishonour, and keep the demand notice, the complaint and the evidence affidavit consistent with one another to the rupee and to the date. An accused should preserve, from the first notice onwards, the documents that support a probable defence, and reply to the demand notice with particulars rather than silence.

Related reading

Section 138 complaints and their defence form part of the wider field of commercial litigation, and the civil and tribunal alternatives are compared in the debt recovery guide. Defence work in cheque matters is described under criminal defence, and the firm on the Unified Chambers And Associates page.

This article is general information on the law as it stands and is not legal advice; whether a particular complaint is maintainable, or a defence available, depends on the dates, the documents and the facts of the case. Queries on cheque dishonour matters may be directed through the contact page.