Section 138 NI Act – Cheque Bounce Case Complete Guide, Legal Notice & Defence Strategy

What is Section 138 of the Negotiable Instruments Act?

Section 138 of the Negotiable Instruments Act, 1881, makes the dishonour (bouncing) of a cheque a criminal offence punishable with imprisonment of up to two years, a fine of up to twice the cheque amount, or both. It was enacted to ensure reliability of cheques as a mode of payment and to deter people from issuing cheques without sufficient funds. A cheque can bounce for: insufficient funds in the drawer's account, the amount exceeding the arrangement with the bank (overdraft limit), or a "stop payment" instruction issued without valid reason after the cheque was delivered.

Essential Ingredients of a Section 138 Offence

• ◆ The cheque must have been issued in discharge of a legally enforceable debt or liability
• ◆ The cheque must be presented to the bank within its validity period (3 months from the date on the cheque)
• ◆ The cheque must be returned unpaid by the bank due to insufficient funds or exceeding arrangement
• ◆ The payee (recipient) must send a legal demand notice within 30 days of receiving the bank's return memo
• ◆ The drawer must fail to make payment within 15 days of receiving the legal notice
• ◆ The complaint must be filed within 30 days after the 15-day payment period expires

Step-by-Step Procedure After a Cheque Bounces

Step 1: Obtain the Bank Return Memo

When the bank returns the cheque unpaid, you receive a Cheque Return Memo (bank memo) stating the reason for dishonour. Save this document — it is the foundational evidence for your case. If presented through your bank (clearing process), the memo will be sent to your bank, who will inform you.

Step 2: Send a Legal Demand Notice Within 30 Days

This is the MOST CRITICAL step. You MUST send a legal notice through a lawyer (Registered Post AD + courier/speed post) to the drawer of the cheque within 30 days of receiving the bank return memo. The notice must contain: the cheque details (number, date, amount, drawee bank), the date of presentation and dishonour, the reason for dishonour as stated in the bank memo, a clear demand for payment of the cheque amount within 15 days of receipt of the notice, and a statement that failure to pay will result in criminal proceedings under Section 138. Keep all postal receipts, acknowledgment cards, and the returned envelope (if any).

At Advocate in Kolkata, we draft and dispatch Section 138 legal notices the same day you approach us. Call +91 74398 11422.

Step 3: Wait 15 Days for Payment

The drawer has 15 days from the date of RECEIPT of the notice to make the payment. If the notice is returned undelivered, courts have held that if it was sent to the correct address by Registered Post, it is deemed served. If payment is made within 15 days, the matter ends. If not, you can file a criminal complaint.

Step 4: File a Criminal Complaint Within 30 Days

The complaint must be filed in the Magistrate Court within 30 days after the 15-day payment period expires. The complaint must be supported by: the original bounced cheque, the bank return memo, a copy of the legal notice with postal receipts and acknowledgment, an affidavit of the complainant, and any other evidence (like the agreement/invoice underlying the debt). The complaint is filed at the court within whose jurisdiction the drawee bank (your bank, where you deposited the cheque) is located — this was clarified by the Supreme Court in Dashrath Rupsingh Rathod (2014) and the subsequent Negotiable Instruments (Amendment) Act, 2015.

Penalties and Punishment

Upon conviction under Section 138: imprisonment up to 2 years, fine up to twice the cheque amount, or both. Courts can also order compensation to the complainant under Section 357 CrPC. In practice, many cases are settled before conviction — the accused pays up to avoid imprisonment.

Defence Strategies in Cheque Bounce Cases

Common defences raised by the accused: the cheque was given as security (not against a debt), there was no legally enforceable debt, the cheque was stolen or obtained by fraud, the notice was not sent within 30 days, the complaint was filed beyond limitation, the signature on the cheque is forged, or the company (in case of a company cheque) — only the person in charge of day-to-day affairs can be prosecuted under Section 141.