Cheque Bounce Under Section 138 of the NI Act
A bounced cheque becomes a criminal case only if a strict timeline is followed. Here it is, step by step.
When a cheque given to repay a debt bounces because the account does not have enough money, the person who wrote it may have committed a criminal offence. Section 138 of the Negotiable Instruments Act, 1881, makes it so, but only if the payee follows a strict notice and complaint timeline.
Recovery agents meet this daily: an EMI cheque returned "funds insufficient", a borrower worried about a court case. You need to know how the process really works, and also what you must never threaten.
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When Section 138 Applies
All of these must be true. If even one is missing, there is no Section 138 offence.
- check_circleThe cheque was drawn on the drawer's own bank account.
- check_circleIt was given to pay a legally enforceable debt or other liability, fully or partly. A gift cheque does not count.
- check_circleThe bank returned it unpaid because the balance was insufficient, or because it exceeded the amount arranged with the bank (for example, an overdraft limit).
- check_circleIt was presented within its validity period. The Act says six months or the validity period, whichever is earlier; under RBI rules a cheque is valid for three months.
- check_circleThe payee sent a written demand notice within 30 days of hearing from the bank that the cheque bounced.
- check_circleThe drawer did not pay within 15 days of receiving that notice.
The Timeline, Step by Step
Example: Ramesh gives his two-wheeler lender an EMI cheque for ₹4,800. It bounces for insufficient funds.
- 1
Cheque returned with a memo
The bank returns the cheque with a slip stating the reason. In court, this bank memo is presumed to prove the dishonour unless disproved (Section 146).
- 2
Demand notice within 30 days
The lender sends Ramesh a written notice demanding ₹4,800 within 30 days of learning about the bounce.
- 3
15 days to pay
Ramesh has 15 days from receiving the notice to pay. If he pays, no offence arises.
- 4
Complaint within one month
If he does not pay, the cause of action arises on day 16. The lender must file a written complaint within one month of that date. A court can accept a late complaint if there is sufficient cause for the delay.
- 5
Trial before a Magistrate
The case is heard by a Metropolitan Magistrate or Judicial Magistrate First Class, at the court covering the branch where the payee holds the account.
What the Law Provides
| Provision | What it says |
|---|---|
| Punishment (Section 138) | Imprisonment up to two years, or a fine up to twice the cheque amount, or both. |
| Presumption (Section 139) | The court presumes the cheque was given for a debt. The drawer must prove otherwise. |
| Companies (Section 141) | The company and the persons in charge of its business at the time can be prosecuted. |
| Interim compensation (Section 143A) | The court may order the drawer to pay up to 20% of the cheque amount to the complainant during the trial. Refundable with interest if acquitted. |
| Appeal deposit (Section 148) | A convicted drawer who appeals may be ordered to deposit at least 20% of the fine or compensation. |
| Settlement (Section 147) | The offence is compoundable: the parties can settle and close the case. |
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What a Recovery Agent Must Not Say
Only the lender, through a court, can take Section 138 action. A recovery agent cannot file the case, cannot arrest anyone and cannot promise or threaten a jail term. Telling a borrower "police will come today" is a false and misleading statement. RBI's rules on debt collection ban threats, intimidation and false or misleading representations. You may state the facts: the cheque bounced, the lender may send a legal notice, and paying the amount avoids that.
How the DRA Exam Tests This
This topic produces number questions: notice within ___ days (30), drawer gets ___ days to pay (15), complaint within ___ (one month), maximum imprisonment ___ (two years), fine up to ___ (twice the cheque amount). The common trap is swapping 15 and 30, or answering "one year" for imprisonment.
A second type tests the conditions: a cheque bounced because the signature did not match, or a cheque given as a gift, is not a Section 138 case for insufficient funds. Read every word of the option.
FAQs
What is the punishment for cheque bounce in India?expand_more
Under Section 138, imprisonment up to two years, or a fine up to twice the cheque amount, or both. The court can also order interim compensation of up to 20% during the trial.
How many days do I get to pay after a cheque bounce notice?expand_more
15 days from the date you receive the written demand notice. Paying within that time means no offence is made out.
Can a cheque bounce case be settled?expand_more
Yes. Section 147 makes the offence compoundable, so the payee and drawer can settle the matter and close the case.
Can a recovery agent file a cheque bounce case?expand_more
No. The complaint is filed by the payee or holder in due course, usually the lender. An agent can only tell the borrower the facts and the lender's options, without threats.
Next steps
- NI Act, 1881arrow_forward
- Cheque Collectionarrow_forward
- Defaulter's Rightsarrow_forward
- Code of Conductarrow_forward
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