Cheque Bounce Case under Section 138 NI Act: Notice, Process & Punishment (2026)

Introduction

A cheque bounce occurs when a bank refuses to honour a cheque presented for payment. In many cases, cheque dishonour may lead to legal proceedings under Section 138 of the Negotiable Instruments Act, 1881, provided the statutory requirements are fulfilled.

Section 138 was enacted to promote the credibility of cheque transactions and protect payees against dishonoured cheques issued towards legally enforceable debts or liabilities.

This guide explains the meaning of cheque bounce, the legal requirements under Section 138, the notice procedure, court process, punishment, and the rights of both the drawer and the payee.

What is a Cheque Bounce?

A cheque is said to be dishonoured or "bounced" when the bank refuses to make payment upon presentation.

Common reasons include:

• Insufficient funds.

• Account closed.

• Payment stopped by the drawer.

• Signature mismatch.

• Alteration in the cheque.

• Exceeds arrangement with the bank.

• Other reasons recognised under banking rules.

Not every cheque dishonour automatically results in criminal liability under Section 138.

What is Section 138 of the Negotiable Instruments Act?

Section 138 of the Negotiable Instruments Act, 1881 provides for criminal liability where a cheque issued towards the discharge of a legally enforceable debt or liability is dishonoured, and the statutory conditions prescribed under the Act are satisfied.

The offence is attracted only when all legal requirements under the Act have been complied with.

Essential Conditions for Filing a Case under Section 138

A complaint under Section 138 generally requires the following conditions:

• The cheque must have been issued for a legally enforceable debt or liability.

• The cheque must be presented within its validity period.

• The cheque must be dishonoured by the bank.

• The payee or holder must issue a statutory legal notice to the drawer within the time prescribed by law after receiving the bank's cheque return memo.

• The drawer must fail to make payment within the statutory period after receiving the notice.

• The complaint must be filed before the competent court within the limitation period prescribed under the Act.

Step-by-Step Cheque Bounce Process

Step 1: Presentation of the Cheque

The payee presents the cheque to the bank within its validity period.

Step 2: Dishonour of the Cheque

If the bank refuses payment, it issues a Cheque Return Memo mentioning the reason for dishonour.

Step 3: Send a Legal Demand Notice

The payee must issue a written legal notice to the drawer within the statutory period prescribed under the Negotiable Instruments Act after receiving information regarding dishonour.

The notice generally demands payment of the cheque amount.

Step 4: Wait for the Statutory Payment Period

After receiving the legal notice, the drawer is given the statutory period provided under the Act to make payment.

If payment is made within this period, criminal proceedings under Section 138 may not arise.

Step 5: File the Complaint

If payment is not made within the prescribed period, the payee may file a complaint before the competent Magistrate having jurisdiction.

Step 6: Court Proceedings

The court may:

• Examine the complaint.

• Issue summons.

• Record evidence.

• Hear both parties.

• Decide the matter according to law.

Step 7: Final Judgment

After considering the evidence and applicable law, the court passes its judgment.

Documents Generally Required

The following documents are commonly required:

• Original cheque.

• Cheque return memo issued by the bank.

• Copy of the legal demand notice.

• Proof of dispatch and delivery of the notice.

• Bank account statement, where relevant.

• Loan agreement, invoice, or other document showing the debt or liability.

• Identity proof of the complainant.

• Any other supporting documents.

Punishment under Section 138 NI Act

If the offence is proved, the court may impose punishment as provided under Section 138 of the Negotiable Instruments Act, 1881, which may include imprisonment, fine, or both, subject to the facts of the case and the applicable law.

The exact punishment is determined by the court based on the circumstances of each case.

Can the Case Be Settled?

Yes. Many cheque bounce disputes are resolved through:

• Mutual settlement.

• Payment of the cheque amount.

• Mediation, where appropriate.

• Compounding of the offence, subject to applicable legal provisions.

The court may record the settlement in accordance with law.

Common Defences Available to the Drawer

Depending on the facts, the drawer may raise defences such as:

• No legally enforceable debt or liability.

• Cheque issued as security.

• Material alteration of the cheque.

• Forged signature.

• Improper service of statutory notice.

• Payment already made.

• Other legally recognised defences.

The availability of any defence depends on the evidence and applicable law.