Have you ever been in a situation where your cheque bounced? In India, cheque bounce cases happen frequently, and they carry significant legal repercussions. The law provides for stringent measures to ensure trust in business and personal transactions between parties.
The drawee has an empty account, or there has been no arrangement with the bank for the payment of a particular amount over and above the credit balance; hence, the instrument, being a negotiable one, is dishonoured. The NI Act makes the drawer of the cheque legally accountable, which ensures the payee’s right to recover the sum while also introducing significant financial disincentives for the drawer of the rejected cheques.
This article will explain the detailed step-wise procedure for cheque bounce cases, time limits, punishments, and some landmark Supreme Court judgments that every individual or business must be aware of.
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When Does a Cheque Bounce Become a Legal Offence?
Under Section 138, not every cheque dishonour is a crime. It becomes an offence only if:
- The cheque was written for a debt or liability that was recoverable by law.
- It was returned unpaid due to insufficient funds or stop payment instructions.
- Within 30 days of the dishonour, the payee sent a legal notice.
- The drawer failed to pay within 15 days after receiving notice.
In practice, many clients approach lawyers after missing these deadlines, which weakens their case. Following the timelines very strictly is the golden rule.
Procedure for Cheque Bounce Cases
Step 1: Cheque Dishonoured: What Happens Next?
When a cheque bounces, the bank issues a Cheque Return Memo stating the reason (such as “insufficient funds” or “account closed”). This memo is the first proof required in court.
Practical Note: Many clients panic at this stage and immediately confront the drawer. A better approach is to issue a structured legal notice.
Case Law: Jugesh Sehgal v. Shamsher Singh Gogi (2009): The cheque must be issued for a legally enforceable debt to attract Section 138.
Step 2: Sending a Strong Legal Notice
The payee needs to send the demand notice within 30 days. This is not just a formality. In many cases, a well-drafted notice itself leads to settlement without going to court.
The notice must clearly mention:
- Cheque number and amount
- Reason for dishonour
- Demand for payment within 15 days
Case Law: K. Bhaskaran v. Sankaran Vaidhyan Balan (1999): The Supreme Court laid down five essentials of Section 138, the first of which relates to the demand notice.
Step 3: 15-Day Window Last Chance for the Drawer
- If the drawer pays within 15 days, the matter ends there. If not, the payee gets the right to file a case.
From experience, in nearly 60% of cheque bounce cases, drawers attempt settlement within these 15 days because once the complaint is filed, the risk of criminal liability and reputation damage increases significantly.
Case Law: C.C. Alavi Haji v. Palapetty Muhammed (2007): Notice sent to a correct address shall be valid even if the addressee failed to receive the same.
Step 4: Filing a Complaint in Court
A complaint shall be filed in the Magistrate’s Court within 30 days from the date of expiry of the 15-day notice period.
Documents required:
- Original cheque
- Bank return memo
- Copy of legal notice
- Proof of service of notice
Jurisdiction Rule: After the 2015 amendment, cases can be filed where the payee’s bank is located (where the cheque was presented), making it easier for complainants.
Case Law: Dashrath Rupsingh Rathod v. State of Maharashtra (2014) initially restricted jurisdiction to the drawer’s bank, but this was changed by the amendment.
Step 5: Summons and Court Proceedings
Once the Magistrate finds a prima facie case, a summons is issued to the drawer. The trials are organized in a summary manner to save much time. Evidence can be submitted through an affidavit.
Case Law: Aneeta Hada v. Godfather Travels (2012): In company cases, both the company and responsible directors must be named as accused.
Practical Note: In most cheque bounce cases involving companies, complainants forget to add the company as a party, and the matter is dismissed by the courts.
Step 6: The Court Trial: What Really Happens
During the trial, both parties present their evidence. Drawers frequently assert that the cheque was issued blank or as security. However, under Section 139, courts presume that the cheque was issued for repayment of a debt. The accused must prove otherwise.
Case Law: Rangappa v. Sri Mohan (2010): In presumption of liability lies in favour of the payee.
Practical Note: Most defences, such as “it was a blank cheque,” fail unless backed by strong evidence.
Step 7: Judgment and Punishment
If found guilty, the drawer may face:
- Imprisonment up to two years
- Fine up to double the cheque amount
- Both
Each side will be putting forth evidence.
The courts also direct compensation to the complainant, which would generally be an equal amount to what is on the cheque.
Case Law: R. Vijayan v. Baby (2012): The apex court laid down that courts shall normally award compensation equal to the amount stated in the cheque.
Practical Note: In substance, courts nowadays mostly go ahead to award compensation rather than jail terms so that the payee gets monetary compensation.
Step 8: Settlement and Appeal
The parties may settle at any time during proceedings. Upon conviction, the drawer may prefer an appeal in the Sessions Court, followed by that of the High Court, and ultimately the Supreme Court.
Case Law: Meters and Instruments v. Kanchan Mehta (2018): The courts should encourage compounding and settlement at every stage.
Practical Note: In almost 70% of cheque bounce cases, parties settle during trial once they realize litigation is time-consuming.
Why is Section 138 NI Act Unique?
- Strict timelines: Missing deadlines weakens the case.
- Quasi-criminal nature: Though criminal, the focus is on financial recovery.
- Company liability: Companies and their officers can be prosecuted.
- Settlement-friendly: The Law encourages compromise at all stages.
Conclusion
From experience, the key takeaway is simple:
- If you are a payee, act quickly and within timelines. A strong legal notice often results in early settlement without going to court.
- If you are a drawer, do not ignore the notice. Early settlement can save you from criminal liability and protect your reputation.
Even today, Section 138 of the NI Act remains one of the most powerful measures available to establish commercial trust and financial discipline in India. Its effectiveness lies in the ability to initiate timely proceedings, maintain proper documentation, and always have expert legal counsel at hand.
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FAQs
1. Can a cheque bounce case be filed if the cheque was given as security?
Yes, but only if it can be proven that the cheque was issued towards repayment of a legally enforceable debt. Otherwise, the court may not consider it as per Section 138.
2. How long does it take to file a lawsuit in court for a bounced cheque?
Within 30 days of the drawer’s 15-day window following receipt of the legal notification, the complaint has to be submitted.
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