Cheque Bounce Cases Under Section 138 of the Negotiable Instruments Act

When Section 138 applies

A cheque issued for a legally enforceable debt or liability, presented within its validity period and returned unpaid for insufficient funds or because it exceeds the arrangement, may give rise to an offence under Section 138 of the Negotiable Instruments Act, 1881.

Timelines that must be followed

• Demand notice within 30 days of receiving information of dishonour
• Drawer gets 15 days from receiving the notice to pay
• Complaint within one month after the 15-day period ends

Where to file

Under Section 142, the complaint is filed where the payee’s bank branch, at which the cheque was delivered for collection, is situated.

Interim compensation and appeals

Under Section 143A, the court may order the drawer to pay interim compensation of up to 20% of the cheque amount. In an appeal against conviction, Section 148 allows the appellate court to require a deposit of at least 20% of the fine or compensation.

Common defences

Section 139 presumes the cheque was issued for a debt, but the presumption is rebuttable. Defences may include absence of a legally enforceable debt, defects in the notice, or the complaint being out of time.

Settlement

The offence is compoundable under Section 147, so the parties may settle at any stage with the court’s permission.