Cheque Bounce and Section 138 NI Act: Detailed Legal Analysis with Recent Case Law

By Abhishek Jat, Advocate, Gwalior High Court

What is Cheque Bounce?

A cheque bounce, or dishonour of cheque, happens when a cheque presented to the bank is returned unpaid. The most common reason is insufficient funds in the account, but other grounds include mismatched signatures, overwriting, stale or post-dated cheques, or stop-payment instructions. Cheque bounce disrupts financial reliability and can have serious legal consequences for the drawer, especially under Indian law.

Legal Framework: Section 138 of the Negotiable Instruments Act

Section 138 of the Negotiable Instruments Act, 1881, criminalizes the act of issuing a cheque that is dishonoured for insufficient funds or if it exceeds the arrangement with the bank. The law aims to ensure the credibility of cheque transactions and penalize those who issue cheques without maintaining adequate funds. The penalty can include imprisonment up to two years, a fine up to twice the cheque amount, or both. The law also provides for compensation and interest to the complainant.

Step-by-Step Legal Process

• Issuance of Legal Notice:

The payee must send a written demand notice to the drawer within 30 days of receiving the dishonour memo from the bank, demanding payment of the cheque amount.

• 15-Day Waiting Period:

The drawer has 15 days from receipt of the notice to make the payment and settle the matter.

• Filing the Complaint:

If payment is not made, the payee can file a complaint in the appropriate court, attaching all relevant documents including the dishonoured cheque, bank memo, and copy of the notice.

• Court Proceedings:

The court reviews the complaint, may issue summons or warrants, and both parties present their evidence. The court then delivers its judgment, which may result in conviction or acquittal.

• Appeal Process:

Either party can appeal the judgment. The complainant may seek enhancement of sentence or challenge an acquittal, while the accused can challenge a conviction.

Key Case Laws and Recent Precedents

P. Mohan Raj v. Shah Brothers Ispat Pvt. Ltd. (2021) 6 SCC 258:

The Supreme Court held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) applies only to corporate debtors and not to natural persons (e.g., directors). Thus, proceedings under Section 138 NI Act can continue against individuals even if the company is under moratorium.

Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd. (2012) 5 SCC 661:

The Supreme Court clarified that for offences by companies, arraigning the company as an accused is imperative. Only the company and those responsible for its conduct can be prosecuted under Section 138.

Aparna A. Shah v. Sheth Developers Pvt. Ltd. (2013) 8 SCC 71:

In cases of joint accounts, only the drawer of the cheque is liable under Section 138, not all account holders.

N. Harihara Krishna v. J. Thomas (2017) SCC Online SC 1017:

Reaffirmed that only the drawer is liable in cheque bounce cases involving joint accounts.

Recent Supreme Court Decisions (2023–2025):

• HDFC Bank Ltd vs State Of Maharashtra (2025): Reiterated the procedural requirements and reinforced the liability of the drawer under Section 138.
• Parshottam Shantilal Chaddarwalaa vs The State Of Gujarat (2025): Emphasized the importance of timely notice and proper documentation in cheque bounce cases.
• Satish P. Bhatt vs The State Of Maharashtra (2024): Upheld conviction under Section 138 and clarified sentencing guidelines.
• Andhra Pradesh High Court (2025): Acquittal was upheld where no legally enforceable debt was found, highlighting the necessity of proving a legally enforceable debt for conviction under Section 138.

Important Practical Points

• Ensure Sufficient Funds: Always maintain adequate balance before issuing a cheque.
• Respond Promptly to Legal Notices: Failure to respond can escalate the matter to criminal proceedings.
• Proper Documentation: Maintain records of all cheques issued, notices sent, and communications exchanged.
• Seek Legal Advice: Timely legal consultation can prevent escalation and help navigate complex procedural requirements.

Conclusion

Cheque bounce cases under Section 138 NI Act are treated with utmost seriousness by Indian courts, as reflected in recent Supreme Court and High Court judgments. The law provides a robust mechanism for redressal, but strict compliance with procedural requirements and the existence of a legally enforceable debt are essential for successful prosecution. Both drawers and payees must be aware of their rights and obligations to avoid legal pitfalls and ensure financial discipline.

Authored by Abhishek Jat, Advocate, Gwalior High Court

Disclaimer: This article is intended for informational and academic purposes only. It does not constitute legal advice or create an attorney-client relationship. Readers are encouraged to consult a qualified legal professional for advice regarding specific legal issues or cases. The views expressed herein are those of the author and do not represent the official position of any organization or institution.

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