Cheque Bounce Case (Section 138): Complete Legal Guide 2026

A "Cheque Bounce" (legally termed as Dishonour of Cheque) is one of the most common financial offenses in India, yet it is arguably the most misunderstood. Unlike a simple loan default which is a civil dispute, a cheque bounce under Section 138 of the Negotiable Instruments Act, 1881 is a criminal offense.

This means it carries the weight of criminal law: police involvement, potential imprisonment, and a criminal record.

Whether you are a business owner whose client's cheque returned unpaid, a lender struggling to recover money from a friend, or an individual falsely accused of this offense, this comprehensive guide covers every single legal aspect you need to know in 2026.

📑 Table of Contents

What is Section 138 of NI Act?
Why Cheques Bounce (Reasons)
The Mandatory Legal Process (Step-by-Step)
Interim Compensation (Section 143A)
Punishment & Penalties
Jurisdiction: Where to File?
Defense for Accused
FAQs

<a id="what-is-section-138"></a>1. What is Section 138 of NI Act?

Section 138 of the Negotiable Instruments Act, 1881, was introduced to inculcate faith in the efficacy of banking operations and to give credibility to negotiable instruments like cheques.

The Core Definition

If a person issues a cheque to another person for the discharge of any debt or other liability, and that cheque is returned by the bank unpaid because of:

"Insufficient Funds" in the account, OR
The amount exceeds the arrangement made with the bank (e.g., overdraft limit),

Then, such a person is said to have committed an offense under Section 138.

Key Ingredients for an Offense

For a case to stand in court, the following must be true:

Legally Enforceable Debt: The cheque must be for a clear debt. A cheque given as a gift, donation, or for an illegal transaction (like gambling debt) is NOT covered.
Presentation: The cheque must have been presented to the bank within its validity period (3 months from date of issue).
Return: The bank must officially return it unpaid.

<a id="reasons-for-dishonour"></a>2. Why Cheques Bounce (Reasons)

When a cheque is dishonest, the bank issues a "Cheque Return Memo". This memo cites the specific reason. While "Funds Insufficient" is the most common, Section 138 covers several others.

Common Reasons Covered Under Section 138

"Funds Insufficient": The account balance is lower than the cheque amount.
"Account Closed": The issuer closed the account after issuing the cheque but before you presented it. (This is treated very strictly by courts).
"Exceeds Arrangement": The amount is more than the overdraft limit.
"Stop Payment": The issuer ordered the bank to stop payment. (Court presumes this was done to cheat, unless proven otherwise).
"Drawer's Signature Differs": Interestingly, the Supreme Court has ruled that even signature mismatch can attract Section 138 if the underlying intent was to cheat or if funds were also insufficient.

<a id="process"></a>3. The Mandatory Legal Process (Step-by-Step)

This is the most critical part of this guide. The law provides a very strict timeline. Missing a deadline by even one day can get your case dismissed.

Step 1: Presentation & Return

Action: Deposit the cheque in your bank.
Result: Bank returns it with a "Cheque Return Memo".
Deadline: Within 3 months of the date on the cheque.

Step 2: Legal Notice (Section 138(b))

The law mandates that you must give the defaulter one final chance to pay. You cannot file a case without this.

Action: Send a written Legal Notice to the drawer demanding the cheque amount.
Details: Must include cheque number, date, amount, reason for return, and a clear demand to pay within 15 days.
Deadline: You must send this notice within 30 days of receiving the Cheque Return Memo.
Mode: Speed Post or Registered Post with Acknowledgment Due (RPAD) is highly recommended for evidence.

[!TIP] Drafting is Critical A vague notice ("Pay me back all my money") is invalid. You must demand the exact cheque amount. Read our detailed guide on How to Draft a Cheque Bounce Notice →

Step 3: The 15-Day Payment Window

Action: Wait. You cannot file a case yet.
Duration: The accused has 15 days from the receipt of the notice to pay you.

Step 4: Filing the Complaint

Action: If they fail to pay by the 15th day, the "Cause of Action" arises on the 16th day.
Deadline: You have exactly 30 days (from the 16th day) to file a criminal complaint before the Magistrate.

<a id="section-143a"></a>4. Interim Compensation (Section 143A)

This is a game-changer provision introduced in 2018 to favor the complainant (You).

The Rule: Under Section 143A, the Court has the power to order the accused to pay interim compensation to the complainant during the pendency of the trial.

Amount: Up to 20% of the cheque amount.
Timeline: The accused must pay this within 60 days of the court's order.
Impact: This forces the accused to take the case seriously rather than just dragging it on for dates. If they don't pay, the amount can be recovered as if it were a fine (attachment of assets).

[!NOTE] If the accused is eventually acquitted (found innocent), you (the complainant) will have to return this money with bank interest.

<a id="punishment"></a>5. Punishment & Penalties

If the accused is convicted (found guilty), Section 138 is not lenient.

Criminal Liability

Imprisonment: Extending up to 2 years.

Civil/Financial Liability

Fine: Extending up to twice the amount of the cheque.

Real-World Sentencing Trends

In practice, courts usually prioritize compensation over imprisonment. A typical judgment often looks like this: "The accused is sentenced to imprisonment till the rising of the court and directed to pay compensation of [Cheque Amount + Interest + Legal Costs] to the complainant. Default in payment will lead to 6 months simple imprisonment."

This effectively means: Pay up, or go to jail.

<a id="jurisdiction"></a>6. Jurisdiction: Where to File?

Before 2015, there was confusion on whether to file the case where the cheque was issued (defaulter's city) or presented (your city). The Negotiable Instruments (Amendment) Act, 2015 settled this.

The Rule

The case must be filed in the court having jurisdiction over the branch of the bank where the PAYEE (Complainant) maintains the account.

Example:

You (Payee): Have an account in HDFC Bank, Koramaangala, Bangalore.
Defaulter (Drawer): Has an account and lives in Mumbai.
Action: You deposit the cheque in your Bangalore branch. It bounces.
Jurisdiction: You file the case in the Bangalore Court. The defaulter from Mumbai must travel to Bangalore for every hearing. This harassment often forces early settlements!

<a id="defense"></a>7. Defense for Accused

If you are on the receiving end of a cheque bounce notice, is it game over? Not necessarily. The law provides valid defenses.

1. Security Cheque Misuse

The most common defense. If you can prove the cheque was given only as "Security" for a loan that was never disbursed, or for goods never delivered, Section 138 may not apply as there is no "existing debt".

2. Time-Barred Debt

A cheque cannot be used to recover a debt that is time-barred (older than 3 years) under the Limitation Act. Even if you issued the cheque, if the debt itself is legally dead, the cheque bounce is not an offense.

3. Lost/Stolen Cheque

If you had reported the cheque as lost/stolen (via FIR and 'Stop Payment' instruction) before the date on the cheque, you have a strong case.

Read our Guide on How to Defend & Reply →

<a id="faqs"></a>8. Frequently Asked Questions

Q1: Can I file a case for a post-dated cheque (PDC)?

Ans: Yes, but only after the date mentioned on the cheque arrives and it is presented and dishonoured. You cannot file it before the cheque date.

Q2: What if the notice returns unclaimed?

Ans: The Supreme Court has ruled that if the notice was sent to the correct address, "Unclaimed" or "Refused" is deemed as valid service. The 15-day period starts from that date.

Q3: Can I file a single complaint for multiple bounced cheques?

Ans: Yes, provided all cheques were between the same parties, based on the same transaction, and the notices were sent/served within the allowed timeframe.

Q4: Is a lawyer mandatory?

Ans: Not mandatory, but highly risky to go without one. Section 138 cases are "technical". One missed document or deadline can lead to dismissal.

Q5: Can I claim interest?

Ans: You cannot demand interest in the Legal Notice as part of the principal cheque amount (this makes the notice invalid). However, you can claim 18% interest separately in the court prayer (complaint).

Cheque Bounce Case (Section 138): Complete Guide 2026

Cheque Bounce Case (Section 138): Complete Legal Guide 2026

📑 Table of Contents