A bounced cheque can lead to a criminal case under Section 138 of the Negotiable Instruments Act, 1881. The law is strict about time limits: miss one, and the case can fail however strong the claim is. This article explains how these cases work, both for the person holding the cheque and for the person who issued it.
When Section 138 applies
- The cheque was given to pay a legally enforceable debt or liability.
- It was presented to the bank within its validity, which is three months from the date on the cheque.
- It was returned unpaid, typically for insufficient funds. Courts have also applied the section to returns such as “account closed” or “payment stopped” in many situations.
- A written demand notice was sent in time, and the amount was not paid within 15 days of the notice being received.
The time limits, step by step
- Present the cheque within three months of its date.
- Send the demand notice within 30 days of receiving the bank’s return memo.
- The person who issued the cheque has 15 days from receiving the notice to pay.
- If payment is not made, file the complaint before the magistrate within one month after those 15 days end.
A court can accept a late complaint if there was sufficient cause for the delay, but it is unwise to rely on that.
The notice
The notice should give the cheque details, the date of and reason for its return, the amount demanded and the 15-day period to pay. Send it by registered or speed post to the correct address of the person who issued the cheque, and keep the receipts and the tracking record. A notice returned as “refused” or “unclaimed” from the correct address is generally treated as served.
Where the complaint is filed
Where the cheque was deposited through the holder’s bank account, the complaint is filed in the court that has jurisdiction over the place where the holder’s bank branch is located.
What the court can order
- On conviction, imprisonment of up to two years, or a fine of up to twice the cheque amount, or both. The fine is commonly directed to be paid to the complainant as compensation.
- While the case is pending, the court may direct the accused to pay interim compensation of up to 20% of the cheque amount.
- If a convicted person appeals, the appeal court may require a deposit of at least 20% of the fine or compensation.
The presumption, and how it is answered
Once the cheque and the signature are admitted, the law presumes that the cheque was issued for a debt or liability. The accused can rebut this presumption by showing, on a balance of probabilities, that there was no enforceable debt, for example through documents, the complainant’s own finances, or inconsistencies in the complainant’s version.
If you issued the cheque
- Do not ignore the notice. Paying within 15 days of receiving it ends the matter under Section 138.
- If you dispute the debt, send a considered reply and keep your records.
- These cases can be settled at any stage, including before a Lok Adalat.
A civil claim is separate
A Section 138 case deals with the dishonour of the cheque. The holder can also file a civil suit to recover the money, including, in suitable cases, a summary suit under Order XXXVII of the Code of Civil Procedure, 1908. The two can run side by side.
General information only. This article explains the law in general terms and is not legal advice on any particular situation. Laws and procedures change; please take advice on your own facts.