Section 138 – Cheque Bounce – All you need to know

This is just an attempt to simplify the concept of Negotiable Instruments and their impact, for knowledge seekers like you.

‘Negotiable Instrument’, ‘Cheque’ & ‘Dishonour of Cheque’ / ‘Cheque Bounce’:

In the world of commerce and day-to-day business, you come across these phrases on regular basis. The Term ‘instrument’ denotes to a document/paper which generally contains a promise or an acceptance of debt or a liability to pay. The said document/paper generally possesses the property to be ‘negotiated’ instead of actual payment. From this, derives the phrase ‘Negotiable Instrument’, meaning a document/paper which can be negotiated in case of payment of money.

A ‘Cheque’ is one of the popular Negotiable Instrument, which has been considered as preferable and credible negotiable instrument in the recent times.

‘Dishonour of Cheque’ or ‘Cheque Bounce’

Since the passage of time, the moral standards in the commerce and business have been drastically degrading. The sense of pay-ability and liability has been vanishing from certain strata of the business fraternity. Number of instances of dishonor of instruments started coming up, on account of Insufficiency of Balance in the account of drawer and other reasons. Owing to such downfall on the moral front, the credibility of negotiable instruments such as ‘Cheques’ has been started losing confidence in the eyes of the public at large. However, the Government has to be always on its toes, for re-instatement of belief in the great institutions of Banking & Commerce. For facilitating such re-instatement, the Negotiable Instruments Act, 1881 (NI Act) ensued as a deterrent tool for curbing the dishonor of instruments such as ‘Cheques’. The NI Act provides for criminal liability on the drawer of the instrument in case of its dishonor.

Section 138 of the NI Act:

Section 138 is a provision which rules the cases of Dis-honour of Cheques, wherein the Criminal as well as Monetary liability is imposed on the Drawer of such dis-honoured Cheque. Section 138 deals with the procedure and pre-conditions before filing a Criminal Complaint before the Judicial Magistrate. There has been great development in the interpretation of this section, through various landmark Judgements of High Courts and the Supreme Court of India and Amendments to the NI Act. We will throw light on ingredients of Section 138, Judgements and Amendments, in our other articles.

General Perception:

There are lots of perceptions regarding the scope and idea behind the section 138. The most common being that, people tend to perceive the Section 138 to be highly technical one. It is not true that every instance of dishonor of Cheque comes under the purview of Section 138 of NI Act. The most important aspect which is generally overlooked is the purpose of issuance of such dishonoured cheque in first place. This ‘purpose’ has been heavily discussed and elaborated by various Courts in India, including Supreme Court of India. It has been made clear that any person getting hold of a Cheque from the Drawer cannot use the Section 138. The most important perquisite for such issuance of Cheque is existence of a ‘Legally Payable Debt’. The purpose of issuance at first place should be for fulfillment of an existing legally payable debt in favour of the Drawee. It is this aspect wherein the fate of a Criminal Complaint lies and should be known to the general public.

To summarize, a negotiable instrument viz. a Cheque is considered to be dis-honoured or bounced on account of insufficiency of funds in the drawer’s bank account or on account of any other reasons. However, under the purview of Section 138 of NI Act, one must also prove that, the said Cheque was issued by a Drawer to a Drawee against an existing legally payable debt.

(This post should not be considered as legal advice. You are required to approach appropriate legal professional (practitioner/advisor) for your own case and situation. Please note that, this post is directed towards readers in India. The statements and opinion in this post are of author’s own, and do not have binding force before any Court/Authority and thus cannot be used as evidence and for other purpose.)

Read Process Steps in Cheque Bounce Cases

What is Section 138 for Cheque bouncing?

Section 138 of the Negotiable Instruments Act, 1881, specifically deals with the offence of a returning of the cheque by the bank, where the cheque is drawn by the person having an account in such bank had drawn the said cheque for the discharge of his legally payable debt or liability. The person who commits the above offence is liable to be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

What happens if the Cheque bounce?

In case the Cheque is bounced or returned by the bank, the person drawing the said cheque has committed the offence of cheque bouncing (i.e. an offence under Section 138 of the Negotiable Instruments Act, 1881). The person in whose favour the said cheque is drawn, is entitled to initiate criminal proceedings against the said offender. Since the Section 138 of the Negotiable Instruments Act, 1881, provides for some pre-essentials before initiating criminal proceedings and since the same are stringent and time-bound, the aggrieved person (the person in whose favour the said cheque is drawn, and the cheque is bounced) is advised to immediately consult a practicing lawyer of his/her choice.

Is Cheque bounce a criminal Offence in India?

Yes. Cheque bounce is a criminal offence under Section 138 of the Negotiable Instruments Act, 188. The provisions relating to a Summary Criminal Case, provided in the Code of Criminal Procedure, 1973, are applicable to the proceeding under section 138.

How do I file a case against a bounced Cheque?

Needless to mention, you will be required to consult a practicing lawyer for filing a case against cheque bounce in the court, on your behalf. As per the prerequisites enumerated under section 138, a notice demanding the cheque amount is required to be issued to the offender within one (01) month from the date of the return/bounce/dishonour of the cheque, wherein, a minimum 15 days is given to the offender to make payment of the cheque amount. In case the offender fails to pay you the cheque amount within 15 days from the receipt of the said demand notice, you have to file the criminal case before the Judicial Magistrate, within one (01) month from such 15th day.

What is the punishment, penalty under section 138/Cheque Bounce Case?

Under Section 138 of the Negotiable Instruments Act, 1881, a person who commits the offence of cheque bounce is liable for the punishment of imprisonment for a term which may be extended to two years, or with fine/penalty which may extend to twice the amount of the cheque, or with both imprisonment and fine/penalty.

What is the time limit for Cheque bounce case?

As per the prerequisites enumerated under section 138, a notice demanding the cheque amount is required to be issued to the offender within one (01) month from the date of the return/bounce/dishonour of the cheque, wherein, minimum 15 days is given to the offender to make payment of the cheque amount. In case the offender fails to pay you the cheque amount within 15 days from the receipt of the said demand notice, you have to file the criminal case before the Judicial Magistrate, within one (01) month from such 15th day.

Is Section 138 Cheque Bounce a bailable or non bailable Offence? 

An offence under section 138 of the Negotiable Instruments Act, 1881, (i.e. cheque bounce) is a bailable offence. Generally, after the appearance of the accused on the first date of hearing before the Magistrate, bail is granted.

Can an independent director be held responsible in Cheque bouncing case?

Yes. Directors are also personally liable to the irregularities during their tenure in the office as the Director of the Company. Even though an independent Director is not involved in the day to day business of the company, he is an important signatory under the corporate governance and hence is liable for the frauds and other irregularities such as cheque bounce.

Can I sue for a bounced check?

Yes. You can sue for the bounced cheque by initiating a criminal case against the offender. For a detailed timeline and procedure, please refer answers to the above questions.