In commercial and personal financial transactions, cheques are widely accepted as a secure and reliable method of payment. However, when a cheque is dishonoured or returned unpaid by the bank, it not only leads to financial disruption but also creates legal consequences for the drawer.

To curb this practice and maintain the credibility of negotiable instruments, Indian law criminalizes cheque dishonour through Section 138 of the Negotiable Instruments Act, 1881. This provision ensures legal recourse for the payee or holder of the cheque.

Meaning of Cheque Bounce

A cheque bounce occurs when a cheque presented for payment is returned by the bank unpaid. The most common reasons for cheque bounce include:

• Insufficient funds in the drawer’s account
• Closure of the account
• Signature mismatch
• Mismatch in figures or words
• Stop payment instructions by the drawer
• Cheque presented after expiry (i.e., beyond three months from the date of issue)

While not all instances of cheque bounce result in criminal liability, certain types—especially those involving dishonour due to insufficient funds—fall within the scope of Section 138.

Statutory Provisions under Section 138

Section 138 of the Negotiable Instruments Act, 1881, deals with dishonour of cheques for insufficiency of funds. It was inserted by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 to enhance the credibility of financial instruments.

Essential Ingredients of the Offence:

For a successful prosecution under Section 138, the following conditions must be satisfied:

1. The cheque must have been issued in discharge of a legally enforceable debt or liability.
2. The cheque must have been presented to the bank within its validity period (currently, within three months of its issue date).
3. The cheque must be returned unpaid by the bank due to:
   • Insufficient funds, or
   • Exceeding arrangement, or
   • Any other reason indicating the inability of the drawer to honor the payment.
4. The payee must issue a written demand notice to the drawer within 30 days of receiving information from the bank regarding dishonour.
5. The drawer must fail to make payment within 15 days of receiving such notice.

If these elements are fulfilled and the drawer still does not pay the amount, the payee may initiate criminal proceedings under Section 138.

Legal Procedure for Filing a Cheque Bounce Case

1. Issuance of Legal Notice

A written notice must be sent by the payee (or their legal representative) to the drawer, demanding payment of the cheque amount within 15 days. The notice must clearly state:

• The details of the transaction
• The date and amount of the cheque
• Reason for dishonour
• A demand for payment

2. Failure to Pay Within 15 Days

If the drawer fails to make the payment within the stipulated 15-day period, the cause of action arises to initiate legal proceedings.

3. Filing a Complaint

The complainant can file a complaint under Section 138 in the Metropolitan Magistrate or Judicial Magistrate First Class having jurisdiction. The complaint must be filed within 30 days from the expiry of the 15-day notice period.

4. Summoning and Trial

Upon prima facie satisfaction, the Magistrate may issue summons to the drawer. The trial follows the procedure of summary or summons cases under the Code of Criminal Procedure (CrPC).

Jurisdiction

As per the amendment introduced through the Negotiable Instruments (Amendment) Act, 2015, the territorial jurisdiction for filing a cheque bounce case lies with the court where the payee’s bank is located, i.e., where the cheque was presented for payment.

Punishment and Penalties

Upon conviction, the drawer is liable for:

• Imprisonment up to two years, or
• Fine up to twice the amount of the cheque, or
• Both

The court may also direct the drawer to compensate the complainant, and in some cases, the matter may be compounded with mutual consent.

Defences Available to the Drawer

While Section 138 creates a strict liability offence, the drawer may defend the case on grounds such as:

• Absence of legally enforceable debt
• The cheque was issued as a security
• Time-barred debt
• Dispute regarding the amount or transaction

The burden to rebut the presumption under Section 139 (that the cheque was issued for a legally enforceable debt) lies on the drawer.

Recent Judicial Pronouncements

1. Dashrath Rupsingh Rathod v. State of Maharashtra (2014) – Initially held that jurisdiction lies where the drawer’s bank is located.
2. Negotiable Instruments (Amendment) Act, 2015 – Overruled Dashrath case and clarified that jurisdiction lies where the payee’s bank is located.
3. M/s Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2017) – Emphasized compounding of cheque bounce offences and summary disposal.

Conclusion

Cheque bounce is a serious offence under Indian law with both criminal and civil implications. Section 138 of the Negotiable Instruments Act acts as a deterrent against financial default and promotes trust in commercial transactions. While the law is designed to protect payees, it also ensures that the drawer is given adequate opportunity to rectify the situation before facing prosecution.

Given the procedural requirements and strict timelines involved, both parties—drawer and payee—are advised to seek qualified legal assistance when dealing with cheque dishonour matters.

Author: [Your Legal Association’s Name]
Disclaimer: This article is intended for general information purposes only and does not constitute legal advice. For assistance with a cheque bounce case, please consult a qualified advocate or legal expert.