Dealing with a dishonoured cheque is one of the most common legal issues faced in business and personal transactions. Section 138 of the Negotiable Instruments Act, 1881 (NI Act) provides a legal remedy to the payee when a cheque bounces due to insufficient funds or other valid reasons.
In this blog, we will explain the step-by-step procedure of a cheque bounce case under Section 138 NI Act in India.
1. Dishonour of Cheque
The first step occurs when the payee presents the cheque to the bank for encashment. If the cheque is returned unpaid due to reasons such as insufficient funds, account closed, signature mismatch, or other grounds covered under Section 138, a cheque return memo is issued by the bank.
2. Demand Notice to Drawer
Once the cheque is dishonoured, the payee must send a legal notice to the drawer within 30 days from the date of receiving the return memo.
- The notice must clearly demand the cheque amount.
- It serves as a formal intimation to the drawer that legal action will be taken if payment is not made.
3. Waiting Period for Payment
After receiving the demand notice, the drawer gets 15 days’ time to make the payment.
👉 If the drawer clears the amount within this period, no further legal proceedings are required.
4. Filing of Complaint
If the payment is not made within 15 days, the payee can file a criminal complaint under Section 138 before the Magistrate Court.
- This must be done within 30 days after the expiry of the notice period.
5. Cognizance by Court
Once the complaint is filed:
- The Magistrate examines the complaint, cheque, bank return memo, and notice.
- If the Court finds a prima facie case, it takes cognizance and issues summons to the accused.
6. Appearance of Accused
The accused (drawer of the cheque) must appear before the Magistrate. In most cases, bail is granted at this stage.
7. Plea of Accused
The Court asks the accused whether he/she pleads guilty or not guilty.
- If guilty, the case moves towards sentencing.
- If not guilty, the trial begins.
8. Pre-Trial Proceedings
The Court may encourage settlement or compounding between parties. If no settlement is reached, the case proceeds to trial.
9. Complainant’s Evidence
The complainant must submit:
- Affidavit evidence
- Original cheque
- Cheque return memo
- Copy of demand notice
- Postal acknowledgment or proof of service
10. Cross-Examination of Complainant
The accused or their lawyer has the right to cross-examine the complainant to test the credibility of the evidence.
11. Defence Evidence
The accused may:
- Present their own evidence, or
- Choose not to present any defence evidence.
12. Final Arguments
Both parties’ lawyers make their oral submissions before the Court, highlighting facts, evidence, and legal precedents.
13. Judgment
The Magistrate delivers a final judgment:
- Acquittal – if the complaint is not proved beyond reasonable doubt.
- Conviction – if the cheque bounce is proved under Section 138.
14. Sentence and Compensation
If convicted, the accused may face:
- Imprisonment up to 2 years, or
- Fine up to twice the cheque amount, or
- Both.
Additionally, the Court may order compensation to the complainant.
15. Appeal or Revision
Either party has the right to appeal before the Sessions Court or High Court if they are not satisfied with the judgment.
Conclusion
A cheque bounce case under Section 138 of the NI Act follows a strict timeline and procedure. Both the payee and drawer must understand their legal rights and responsibilities to ensure fair justice.
👉 If you are facing a cheque bounce issue, consulting an experienced cheque bounce lawyer can help you file or defend your case effectively.