Cheque bounce: what is Section 138 NI Act and the procedure?

1When a bounced cheque becomes a Section 138 offence

Not every bounced cheque is a crime. Section 138 applies when a cheque issued to discharge a legally enforceable debt is dishonoured because of insufficient funds (or because it exceeds the arrangement with the bank). The cheque must be presented within its validity period (3 months).

2The mandatory timeline — get this exactly right

The whole remedy hinges on three deadlines. Missing any one of them can defeat your case:

1. Day 0: the cheque is dishonoured. Collect the bank's cheque-return memo — it's your key evidence.
2. Within 30 days: send a written legal demand notice to the drawer, demanding payment of the cheque amount.
3. Drawer's 15 days: from receiving the notice, the drawer has 15 days to pay.
4. Next 30 days: if they don't pay, file your complaint in the Magistrate's court within 30 days after that 15-day period ends.

3What you must prove

To win a Section 138 case, you generally need to establish:

• The cheque was issued to discharge a legally enforceable debt or liability
• It was presented to the bank within its validity
• It was dishonoured for insufficient funds (the return memo proves this)
• You sent the demand notice within 30 days
• The drawer failed to pay within 15 days of the notice

4Common defences the drawer may raise

The person who issued the cheque can defend the case. Knowing these helps you prepare:

• There was no legally enforceable debt (the cheque was a gift, security, or for an unenforceable loan)
• The cheque was given blank or as security, not for a present debt
• The demand notice was defective or not served within time
• The complaint was filed after the deadline

5What happens in court

Section 138 is tried as a summary criminal case in the Magistrate's court. The drawer may settle at any stage (the offence is compoundable). If convicted, the punishment can be up to two years' imprisonment, a fine up to twice the cheque amount, or both — and courts often order interim compensation to the payee during the case.

6The three deadlines that decide the case

Section 138 is unusually unforgiving about timing, and most complaints that fail do so on limitation rather than on the merits. Three clocks run in sequence, and missing any one of them can end the case before the cheque is even considered.

The sequence starts from the bank's return memo, not from the date on the cheque, and each step has to be documented — the memo, the notice, proof of dispatch and the complaint itself.

• 30 days from receiving the bank's cheque-return memo to send a written demand notice to the drawer.
• 15 days from the drawer receiving that notice for them to make payment. No cause of action arises until this period expires.
• 30 days from the expiry of that 15-day period to file the complaint before the magistrate.
• Keep proof of dispatch and delivery of the notice, since service is frequently the first thing disputed.

7What the drawer can argue, and what does not work

Section 138 carries a presumption in the complainant's favour: once the cheque, the signature and the return memo are established, the law presumes the cheque was issued to discharge a legally enforceable debt. The burden then shifts to the drawer to rebut that presumption, and it can be rebutted, but only with evidence rather than assertion.

The defences that succeed generally attack one of the elements the offence requires. That the cheque was not issued for a legally enforceable debt at all is the most substantial, for example where it was given as a blank security cheque and later filled in for an amount never owed, or where the underlying debt was already repaid. Establishing this needs documentation such as ledgers, bank statements or correspondence, because a bare denial will not displace the presumption.

Procedural defences are equally important and often decisive. If the demand notice was not issued within 30 days of the return memo, or the complaint was filed before the 15-day payment period expired or more than 30 days after it, the complaint is out of time. Defects in how the notice was served, or a notice demanding an amount different from the cheque amount, are also commonly raised.

What does not work is as instructive. Simply saying there were insufficient funds by accident is not a defence, since the offence does not require an intention to deceive. Nor is closing the account or instructing the bank to stop payment, both of which are treated the same as insufficiency of funds. Disputes about the quality of goods or services supplied are generally matters for a civil suit and do not by themselves defeat a Section 138 complaint.

• Rebutting the presumption requires evidence, not merely a denial.
• The strongest defences go to whether a legally enforceable debt existed at all.
• Limitation defects in the notice or complaint timeline are frequently decisive.
• Stop-payment instructions and account closure are treated like insufficiency of funds.
• Disputes over goods or services are usually civil matters and rarely defeat the complaint.