Cheque bounce cases under Section 138 of the NI Act

Section 138 applies where a cheque drawn on the drawer's account for a legally enforceable debt or liability is returned unpaid for insufficient funds or because it exceeds the arrangement with the bank. The punishment is imprisonment for a term which may extend to two years, or a fine which may extend to twice the cheque amount, or both.

The proviso adds three conditions. The cheque must be presented within six months from its date or within its period of validity, whichever is earlier. The payee or holder in due course must send a written notice demanding payment within thirty days of receiving information from the bank that the cheque was returned. The drawer must then fail to pay within fifteen days of receiving that notice. Sri Dattatraya v. Sharanappa ([2024] 8 S.C.R. 121) calls these the three essential conditions for invoking the section.

Under Section 142(1), the court acts only on a written complaint by the payee or holder in due course, filed within one month of the cause of action under clause (c) of the proviso. Sri Dattatraya holds that this month begins only after the fifteen-day payment window ends. A later complaint can be taken up if the complainant shows sufficient cause for the delay. Only a Metropolitan Magistrate or a Judicial Magistrate of the first class can try the offence.

Section 142(2), in force from 15 June 2015, fixes the court. If the cheque is delivered for collection through an account, the case lies where the payee's bank branch maintaining that account is situated. Otherwise it lies where the drawer's branch is. The amendment followed Dashrath Rupsingh Rathod v. State of Maharashtra ((2014) 9 SCC 129), a three-judge ruling that led to complaints being returned for filing elsewhere. Bridgestone India Pvt. Ltd. v. Inderpal Singh ((2016) 2 SCC 75) held that, because of Section 142A(1), that ruling no longer stands in the way of filing where the cheque was delivered for collection. The Court applied this again in 2025 (Prakash Chimanlal Sheth v. Jagruti Keyur Rajpopat, 2025 INSC 897).

Section 118(a) presumes that every negotiable instrument was made or drawn for consideration. Section 139 presumes, unless the contrary is proved, that the holder received the cheque for the discharge of a debt or other liability. Rangappa v. Sri Mohan ((2010) 11 SCC 441) held that this presumption includes the existence of a legally enforceable debt. It is rebuttable on a preponderance of probabilities, and the accused may use the complainant's own material to raise a probable defence.

Basalingappa v. Mudibasappa ((2019) 5 SCC 418) repeats that the accused need not give evidence and may rely on the record. A bare denial is not enough: in Kuntegowda v. Thurubaiah (2026 INSC 790) the Court said so and restored a conviction that the High Court had set aside in revision.

When the drawer is a company, Section 141(1) makes every person who, at the time of the offence, was in charge of and responsible to the company for the conduct of its business liable along with the company. That person escapes liability by proving lack of knowledge or due diligence. A director nominated because of a government office or employment cannot be prosecuted. Section 141(2) covers any director, manager, secretary or officer whose consent, connivance or neglect led to the offence. A company here includes a firm, and a director of a firm means a partner.

S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla ((2005) 8 SCC 89) holds that being described as a director is not enough. Because the liability is vicarious, the complaint must contain averments that bring the person within Section 141.

Section 143 provides for summary trial by a Magistrate, who may then impose up to one year's imprisonment and a fine above five thousand rupees. If a longer sentence may be needed, the Magistrate must record an order after hearing the parties and try the case in the regular way. Trials should run day to day, with an aim to finish within six months. Sri Dattatraya asks courts to be liberal about the accused's attendance and to avoid a non-bailable warrant at the first instance.

Under Section 143A the court may order interim compensation of up to twenty per cent of the cheque amount once the accused pleads not guilty, payable within sixty days (extendable by thirty) and refundable with interest on acquittal. Rakesh Ranjan Shrivastava v. State of Jharkhand ([2024] 3 S.C.R. 438) held the power discretionary: the court must weigh both sides prima facie and give brief reasons.

In an appeal against conviction, Section 148 lets the appellate court order a deposit of at least twenty per cent of the fine or compensation, in addition to any interim compensation. Muskan Enterprises v. State of Punjab ([2024] 12 S.C.R. 1273) repeats that the deposit is normally imposed, with an exception for recorded reasons where it would be unjust or defeat the right of appeal.

Section 147 makes every offence under the Act compoundable. Damodar S. Prabhu v. Sayed Babalal H. ((2010) 5 SCC 663) set graded costs to discourage late settlement. In Sanjabij Tari v. Kishore S. Borcar (2025 INSC 1158), decided on 25 September 2025, the Supreme Court revised them: no cost if the offence is compounded before the defence evidence is recorded; 5 per cent of the cheque amount if it is compounded after the defence evidence but before judgment; 7.5 per cent before the Sessions Court or High Court in revision or appeal; and 10 per cent before the Supreme Court. The same judgment held that a cash loan of twenty thousand rupees or more remains a legally enforceable debt for Section 138 even though it contravenes Section 269SS of the Income-tax Act.

Raj Reddy Kallem v. State of Haryana ([2024] 5 S.C.R. 203) confirms there is no bar to compounding at later stages, including after conviction.