What to do when a cheque you received bounces

When a cheque is returned unpaid by the drawee bank for insufficiency of funds in the drawer's account, or because the cheque amount exceeds the arrangement between the drawer and the bank, Section 138 of the Negotiable Instruments Act, 1881 converts what would otherwise be a private commercial breach into a criminal offence punishable with imprisonment up to two years or fine up to twice the cheque amount or both. The offence is constructed by a sequence of statutory acts — the cheque must have been issued in discharge of a legally enforceable debt or other liability, presented to the bank within its period of validity, returned unpaid for one of the two specified reasons, followed by a written demand notice from the payee within 30 days of receiving information from the bank, and a 15-day cure window in which the drawer fails to pay. The Supreme Court in Rangappa v Sri Mohan, (2010) 11 SCC 441 confirmed that Section 139 raises a reverse-onus presumption that the cheque was issued for a legally enforceable debt — the drawer's burden of rebuttal is on a preponderance of probabilities, not proof beyond reasonable doubt. This guide takes the procedure section by section from the dishonour memo to conviction.

A bounced cheque sits at the seam between civil debt and criminal sanction. Until the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 inserted Chapter XVII into the Negotiable Instruments Act, 1881, the dishonour of a cheque gave the payee a civil remedy against the drawer — a suit for the cheque amount under Section 73 of the Indian Contract Act, 1872 — but no criminal handle. The 1988 amendment changed that. Sections 138 to 142 of the Negotiable Instruments Act, 1881 — and the 2002, 2015 and 2018 amendments that followed — built a code-within-a-code: a special offence with its own ingredients, its own notice-and-cure procedure, its own jurisdiction rule, its own summary-trial framework, its own evidence-on-affidavit regime, and its own interim-compensation power. The structure is restrictive and procedural — every step has a clock, and a step missed is a complaint lost. The Supreme Court in Goaplast (P) Ltd v Chico Ursula D'Souza, (2003) 3 SCC 232 set out the larger purpose: Chapter XVII is intended to promote the efficacy of banking operations and ensure credibility in transacting business through cheques. The payee who wants to use the chapter must follow it in the order it lays down.

Section 138 — the offence and its five ingredients

Section 138 of the Negotiable Instruments Act, 1881 defines the offence. The opening clause provides that where any cheque drawn by a person on an account maintained by him with a banker for the payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque, or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of the Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both. The two-year ceiling was raised from one year by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.

The Supreme Court in Kusum Ingots & Alloys Ltd v Pennar Peterson Securities Ltd, AIR 2000 SC 954 set out the five ingredients that must coexist for the offence to be made out — (i) the drawer must have drawn a cheque on an account maintained by him with a bank for payment of a certain amount of money for the discharge of a debt or other liability; (ii) the cheque must have been presented within the period of its validity; (iii) the cheque must have been returned by the bank unpaid because of insufficiency of funds or because it exceeds the amount arranged; (iv) the payee or holder in due course must have made a written demand on the drawer for the cheque amount within 30 days of receiving information from the bank about the return; and (v) the drawer must have failed to pay within 15 days of receiving the demand notice. If any of the five fails, the offence is not made out.

The Explanation to Section 138 carries the load on what counts as a "debt or other liability" — it means a legally enforceable debt or other liability. A cheque issued as a gift, a donation, in discharge of a moral obligation, or for an illegal consideration falls outside Section 138 — see Goaplast (P) Ltd v Chico Ursula D'Souza, (2003) 3 SCC 232 on the protection of the post-dated cheque, and the long line of cases excluding gift cheques and cheques for time-barred debts.

Section 139 — the reverse-onus presumption

Section 139 of the Negotiable Instruments Act, 1881 supplies the evidential spine of the Section 138 prosecution. It provides that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque, of the nature referred to in Section 138, for the discharge, in whole or in part, of any debt or other liability. The presumption operates in favour of the complainant and shifts the evidential burden onto the drawer.

The Supreme Court in Rangappa v Sri Mohan, (2010) 11 SCC 441 — a three-judge bench decision — held that Section 139 is an example of a reverse-onus clause inserted to advance the legislative objective of improving the credibility of negotiable instruments. The presumption under Section 139 extends not merely to the existence of the cheque but to the existence of a legally enforceable debt or liability behind it; the drawer's burden is to raise a probable defence on a preponderance of probabilities, not to disprove the debt beyond reasonable doubt. The Court emphasised that the offence under Section 138 is best described as a regulatory offence — the bouncing of a cheque is largely a civil wrong with criminal consequences attached for deterrence — and the standard of rebuttal must be construed proportionately. The drawer may rely on materials produced by the complainant to raise the rebuttal and is not always required to enter the witness box.

The presumption operates from the moment the cheque is in the hands of the holder. In Bir Singh v Mukesh Kumar, (2019) 4 SCC 197 the Supreme Court reaffirmed that even a blank cheque signed by the drawer and voluntarily handed over to the payee attracts the presumption under Section 139 — the payee's filling in of the amount and date does not displace the presumption, provided the signature is admitted. The presumption is rebuttable on a preponderance of probabilities; mere denial does not suffice.

Section 140 — the "no reason to believe" defence is foreclosed

Section 140 of the Negotiable Instruments Act, 1881 closes off one obvious line of defence. It provides that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section. The provision precludes the defence that the drawer honestly expected funds to be in the account on the date of presentment. The reasonableness of the drawer's expectation is irrelevant to the Section 138 offence — the construction of the offence is strict on the consequence and not on the drawer's belief.

Section 141 — offences by companies and the in-charge test

Section 141 of the Negotiable Instruments Act, 1881 extends Section 138 to corporate bodies and to the individuals who manage them. Section 141(1) provides that where the person committing the offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company itself, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Section 141(2) extends liability to directors, managers, secretaries and other officers where the offence is proved to have been committed with their consent or connivance, or is attributable to neglect on their part.

The Supreme Court has read Section 141 narrowly. In Central Bank of India v Asian Global Ltd, AIR 2010 SC 2835 the Court reaffirmed the line of authority that requires specific averment in the complaint that the accused was, at the time the offence was committed, in charge of and responsible to the company for the conduct of its business. A bare assertion that a person was a director is not enough — the complaint must say what role the director played and why he is in-charge-and-responsible. In Anil Hada v Indian Acrylic Ltd, AIR 2000 SC 145 the Court held that the company is the principal offender; the liability of its officers under Section 141 is by virtue of the legal fiction the section creates. The 2002 amendment inserted a proviso to Section 141 that exempts nominee directors of companies owned or controlled by the Central or State Government from prosecution.

The practical consequence for the payee drafting the demand notice and the complaint is that both the company and every officer sought to be made liable must be named, and the in-charge-and-responsible averment must be specific to the date the cheque was issued and presented.

Section 142 — cognizance, complaint and the 2015 jurisdiction amendment

Section 142(1) of the Negotiable Instruments Act, 1881 controls the gateway to the magistrate's court. It provides that, notwithstanding anything in the Code of Criminal Procedure, 1973 (now read with the corresponding provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023), no court shall take cognizance of any offence punishable under Section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque. The complaint must be made within one month of the date on which the cause of action arises under clause (c) of the proviso to Section 138 — that is, within one month of the expiry of the 15-day cure window following the drawer's receipt of the demand notice. The 2002 amendment empowered the magistrate to take cognizance of a complaint filed after the one-month period if the complainant satisfies the court that he had sufficient cause for the delay — a condonation power similar to Section 5 of the Limitation Act, 1963 but contained within Section 142 itself.

The cognizance must be by a Metropolitan Magistrate or a Judicial Magistrate of the First Class — no court of lower seniority can take cognizance of a Section 138 offence. The complaint must comply with the requirements of Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (formerly Section 200 of the Code of Criminal Procedure, 1973) — the examination of the complainant on oath and the recording of his statement.

Jurisdiction was the most-litigated procedural question in the Section 138 universe until the 2015 amendment settled it. The Supreme Court in K Bhaskaran v Sankaran Vaidhyan Balan, (1999) 7 SCC 510 had held that a Section 138 complaint could be filed at any of the five places where any of the constituent acts took place — where the cheque was drawn, where it was presented for encashment, where the dishonour memo was issued, where the demand notice was served, or where the drawer failed to pay within the 15-day window. The flexibility led to forum-shopping by complainants. In Dashrath Rupsingh Rathod v State of Maharashtra, (2014) 9 SCC 129 a three-judge bench overruled Bhaskaran and held that the Section 138 complaint can be filed only at the place where the drawee bank — the bank on which the cheque is drawn — is located. The decision had immediate effect: pending complaints had to be transferred to the place of the drawee bank.

Parliament responded with the Negotiable Instruments (Amendment) Act, 2015, which inserted a new Section 142(2) providing that the offence under Section 138 shall be inquired into and tried only by a court within whose local jurisdiction the branch of the bank on which the cheque was drawn is situated — and, if the cheque is delivered for collection through an account, the branch of the bank where the payee has the account. The Supreme Court in Bridgestone India Pvt Ltd v Inderpal Singh, (2016) 2 SCC 75 confirmed the prospective and retrospective operation of the 2015 amendment and the transfer mechanism it created.

Section 143 — summary trial and the conversion threshold

Section 143 of the Negotiable Instruments Act, 1881, inserted by the 2002 amendment, is the engine of speedy disposal. Section 143(1) provides that, notwithstanding anything in the Code of Criminal Procedure, 1973, all offences under Chapter XVII shall be tried by a Judicial Magistrate of the First Class or by a Metropolitan Magistrate in a summary way and the provisions of Sections 262 to 265 of the CrPC (now corresponding to Sections 283 to 288 of the Bharatiya Nagarik Suraksha Sanhita, 2023) shall, as far as may be, apply to such trials. In a summary trial, the magistrate may pass a sentence of imprisonment for a term not exceeding one year and a fine not exceeding five thousand rupees — the limits inherent in the summary mode.

The proviso to Section 143(1) supplies the safety valve. Where, in the course of a summary trial, it appears to the magistrate that the nature of the case is such that a sentence of imprisonment for a term exceeding one year may have to be passed, or that it is, for any other reason, undesirable to try the case summarily, the magistrate shall, after hearing the parties, record an order to that effect and recall any witnesses already examined and proceed to hear or rehear the case in the manner provided by the CrPC for the trial of summons cases. The Supreme Court in Mandvi Co-op Bank Ltd v Nimesh B Thakore, (2010) 3 SCC 83 held that the Section 143 summary procedure is mandatory in its first instance — the magistrate cannot start a Section 138 trial in any mode other than summary; the conversion to summons-case mode requires the recorded order under the proviso.

Section 143(2) requires the trial to be conducted as expeditiously as possible and to be concluded within six months from the date of filing of the complaint. The six-month target is directory and not mandatory; the courts treat material slippage as a matter for case-management orders rather than acquittal. The Supreme Court in Indian Bank Association v Union of India, (2014) 5 SCC 590 issued detailed procedural directions to magistrates to compress the timeline — including the use of summons service through approved courier, examination of the complainant on the same day as cognizance, and one-shot recording of the accused's plea.

The Supreme Court in Meters and Instruments Pvt Ltd v Kanchan Mehta, (2018) 1 SCC 560 directed magistrates to use technology in the discharge of the Section 143 mandate — service of summons by email, evidence recording through video-conferencing where appropriate, and digital filing of complaints — and emphasised the compounding power under Section 147 as the preferred mode of disposal where the drawer is willing to pay.

Section 143A — interim compensation since 2018

Section 143A of the Negotiable Instruments Act, 1881, inserted by the Negotiable Instruments (Amendment) Act, 2018 with effect from 1 September 2018, plugged a long-standing gap. Until 2018 the complainant had to wait through the entire trial and any appeal for the cheque amount to be realised — a process commonly running three to seven years. Section 143A empowers the court trying an offence under Section 138 to order the drawer to pay interim compensation to the complainant. Section 143A(1) makes the interim-compensation power available at two stages — (a) in a summary trial or summons case, on the drawer pleading not guilty to the accusation made in the complaint; (b) in any other case, upon framing of charge. Section 143A(2) caps the interim compensation at twenty per cent of the amount of the cheque.

The interim compensation is payable within sixty days of the order, extendable by a further thirty days for sufficient cause. Section 143A(3) provides that if the drawer is subsequently acquitted, the court shall direct the complainant to repay the interim compensation, with interest at the bank rate published by the Reserve Bank of India, within sixty days of the order. Section 143A is, in design, a deposit mechanism rather than a final award — it compresses the drawer's incentive to drag the trial.

Section 144 — service of summons

Section 144 of the Negotiable Instruments Act, 1881, inserted by the 2002 amendment, supplies a special mode of service of summons in Section 138 proceedings. Notwithstanding anything in the Code of Criminal Procedure, 1973, summons may be served on the accused or witness in such manner as the court may consider expedient — including service by speed post or by such courier services as may be approved by the State Government in this behalf. The provision was designed to overcome the chronic delay in Section 138 trials caused by failed personal service. Where the summons is returned with an endorsement that the addressee refused to receive it, the court is empowered to declare service to have been duly effected. The Bharatiya Nagarik Suraksha Sanhita, 2023 carries forward the electronic-service provisions in Section 64.

Sections 145 and 146 — evidence on affidavit and the bank's slip

Section 145 of the Negotiable Instruments Act, 1881, inserted by the 2002 amendment, restructured how the complainant's evidence is recorded. Section 145(1) provides that, notwithstanding anything in the CrPC, the evidence of the complainant may be given by him on affidavit and may, subject to all just exceptions, be read in evidence in any inquiry, trial or other proceeding under the CrPC. Section 145(2) permits the court, on the application of the prosecution or the accused, to summon and examine any person whose evidence has been given on affidavit. The combined effect is that the complainant files an affidavit-in-chief with the complaint or shortly after cognizance; cross-examination follows on the affidavit. The provision was upheld and clarified in Mandvi Co-op Bank Ltd v Nimesh B Thakore, (2010) 3 SCC 83, which held that the accused has a right to cross-examine the complainant but cannot demand a fresh examination-in-chief in oral form.

Section 146 of the Negotiable Instruments Act, 1881 provides that, notwithstanding anything in the CrPC or the Bharatiya Nagarik Suraksha Sanhita, 2023, the court shall, in respect of every proceeding under Chapter XVII, on production of bank's slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved. The provision works alongside the general presumption of regularity of official acts under Section 114 of the Indian Evidence Act, 1872 (Section 119 of the Bharatiya Sakshya Adhiniyam, 2023) and dispenses with the need to lead bank-employee evidence on the routine fact of dishonour. The slip itself is sufficient.

Section 147 — compounding

Section 147 of the Negotiable Instruments Act, 1881, inserted by the 2002 amendment, makes every offence punishable under the Act a compoundable offence — notwithstanding anything in the CrPC. The provision converted the Section 138 offence from a non-compoundable to a compoundable one and supplied the legal basis for the routine settlement-before-trial pattern that now disposes of the majority of Section 138 matters. The Supreme Court in Damodar S Prabhu v Sayed Babalal H, (2010) 5 SCC 663 issued a graduated cost-schedule for compounding — nil if compounded at the first hearing, ten per cent of the cheque amount if compounded after appearance and at the stage of evidence, fifteen per cent if compounded after evidence, and twenty per cent if compounded at the appellate stage. The schedule is not statutory but is followed by magistrates and high courts as a self-imposed discipline.

Putting it together — the five-step procedure

The ten-section anatomy above is the statutory frame. The payee's procedure walks through it in a fixed order. Step one — presentment. The cheque must be presented to the drawee bank within its period of validity. By a Reserve Bank of India directive issued in 2011 and effective 1 April 2012, the validity of a cheque is three months from the date of issue (reduced from the earlier six months). A cheque presented after the validity period is stale and the bank will return it without dishonour for Section 138 purposes — the offence is not made out.

Step two — the dishonour memo. The drawee bank, on returning the cheque unpaid, issues a return memo specifying the reason — "insufficient funds", "exceeds arrangement", "stop payment", "account closed", or other reasons. The Supreme Court in Modi Cements Ltd v Kuchil Kumar Nandi, (1998) 3 SCC 249 held that a stop-payment instruction by the drawer attracts Section 138; in NEPC Micon Ltd v Magma Leasing Ltd, (1999) 4 SCC 253 the Court held that closure of the account by the drawer is equivalent to insufficiency of funds and attracts the section. The dishonour memo is the trigger for the 30-day clock under proviso (b) to Section 138.

Step three — the demand notice. The payee or holder in due course must make a demand in writing on the drawer for the cheque amount within 30 days of receiving information from the bank about the dishonour. The form and content of the notice — and the case law on what is fatal and what is salvageable — are the subject of the companion article on the demand notice. The 30-day clock runs from the date the payee receives information from the bank, not from the date of dishonour itself. The Supreme Court in C C Alavi Haji v Palapetty Muhammed, (2007) 6 SCC 555 held that a notice sent by registered post to the correct address of the drawer is deemed served by virtue of Section 27 of the General Clauses Act, 1897 read with Section 114 of the Indian Evidence Act, 1872 even if the drawer refuses or avoids service.

Step four — the 15-day cure window. From the date the drawer receives the demand notice, he has 15 days to pay the cheque amount to the payee. If he pays within the 15 days, the cause of action is extinguished and no complaint can lie. If he does not, the cause of action under clause (c) of the proviso to Section 138 arises on the expiry of the 15-day window. The Supreme Court in MSR Leathers v S Palaniappan, (2013) 1 SCC 177 — a Constitution Bench decision — held that the cheque can be presented multiple times for encashment during its validity, and on each subsequent dishonour a fresh notice can be issued; the cause of action is the dishonour on which the payee chooses to base the prosecution, not the first dishonour.

Step five — the complaint. Within one month of the expiry of the 15-day window, the payee files a written complaint before the Metropolitan Magistrate or Judicial Magistrate of the First Class within whose jurisdiction the drawee bank branch is situated (Section 142(2) post-2015). The complaint complies with Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023 — examination of the complainant on oath. The magistrate takes cognizance and issues process under Section 227 of the BNSS (Section 204 of the CrPC, 1973). Affidavit evidence under Section 145 of the NI Act is filed at this stage. Summons is served under Section 144 of the NI Act read with the BNSS service provisions. The matter proceeds to summary trial under Section 143.

The defences available to the drawer

The drawer's defences fall into three groups. The first group attacks the ingredients of Section 138 itself — for example, that the cheque was not issued for a legally enforceable debt (a gift cheque, a security cheque, a cheque for a time-barred debt), or that it was not presented within the validity period, or that the dishonour was not for insufficiency of funds or exceeds-arrangement but for a technical reason such as signature mismatch (which falls outside Section 138 — see the rule in the early line of decisions on "irregular endorsement" and "stamp missing").

The second group attacks the procedure — that the demand notice was issued beyond 30 days from the receipt of bank information, that it demanded less than the cheque amount, that it was issued to the wrong entity, that the complaint was filed beyond the one-month window without an order of condonation, or that the court taking cognizance lacked jurisdiction under the post-2015 Section 142(2) test. The procedural defences are the most frequently successful — Section 138 cases are won and lost on the cleanliness of the paperwork.

The third group rebuts the Section 139 presumption by raising a probable defence on a preponderance of probabilities — typically, that the cheque was issued as security for a transaction that was never consummated, or that the cheque was lost or stolen and misused, or that the cheque was filled in by the payee without authority. The Supreme Court in Rangappa v Sri Mohan, (2010) 11 SCC 441 confirmed that the drawer may rely on materials produced by the complainant — cross-examination, exhibits, contradictions — to raise the rebuttal; the drawer is not always required to enter the witness box.

Sentencing, compensation under Section 357 BNSS and appeal

On conviction, the magistrate may impose a sentence of imprisonment up to two years and a fine up to twice the cheque amount or both — though in a summary trial conducted under Section 143 the ceiling is reduced to one year and a fine of five thousand rupees unless the magistrate has converted the trial to summons-case mode under the proviso to Section 143(1). The magistrate's standard practice is to impose a token sentence of imprisonment, suspend it on the deposit of compensation under Section 393 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (Section 357 of the CrPC, 1973), and direct the fine or compensation to be paid to the complainant in full satisfaction of the cheque amount and interest.

An appeal against conviction lies to the Court of Session under Section 415 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (Section 374 of the CrPC, 1973). The convicted drawer is ordinarily released on bail pending appeal on furnishing a personal bond and complying with any deposit direction the court may impose under Section 148 of the NI Act, 2018 — which requires the appellate court to direct the appellant to deposit a minimum of twenty per cent of the fine or compensation awarded by the trial court, in addition to the interim compensation deposited under Section 143A. The deposit requirement under Section 148 was upheld by the Supreme Court in Surinder Singh Deswal v Virender Gandhi, (2019) 11 SCC 341.

Compounding and execution

The vast majority of Section 138 matters are not tried to judgment — they are compounded under Section 147 on payment of the cheque amount plus negotiated interest and costs. The Damodar S Prabhu graduated cost-schedule operates as the magistrate's reference for whether to allow compounding at a given stage. The compounding extinguishes the offence and the criminal liability; the drawer's record is unaffected.

Where the matter goes to judgment and the magistrate's compensation order under Section 393 BNSS is unpaid, the order is recoverable as a fine under Section 421 of the CrPC, 1973 (Section 462 of the BNSS, 2023) — the magistrate issues a warrant of attachment and sale of the drawer's movable or immovable property, or alternatively orders default imprisonment for the unpaid amount. The compensation order operates concurrently with — and not in substitution of — a civil suit for the cheque amount under the Indian Contract Act, 1872, though in practice the Section 138 disposal absorbs the entire claim.

The payee's working playbook

The Section 138 procedure is unforgiving in its timekeeping and generous in its substance. The five clocks — the cheque validity, the 30-day demand-notice window, the 15-day cure period, the one-month complaint window, and the six-month trial target — are the bones of the procedure. Within them the Section 139 reverse-onus presumption gives the payee a strong evidential position; the Section 145 affidavit framework gives a fast evidence track; and the Section 143A interim-compensation power gives a leverage point against trial-stretching defendants. The payee who keeps the clocks, drafts the notice cleanly, and assembles the documentary chain (cheque, dishonour memo, postal AD card, complaint, affidavit) at the cognizance stage rarely loses a Section 138 matter. The drawer's realistic options narrow to procedural attack, settlement under Section 147, or — in the rare case of a real underlying dispute on the legally enforceable debt — a probable-defence rebuttal under Section 139 on a preponderance of probabilities. The chapter has done what it was inserted to do: turn a private dishonour into an instrument the holder can use.