Cheque Bounce Cases: Understanding Section 138 Proceedings

Introduction

Dishonour of a cheque can create not only financial stress but also criminal liability. In India, cheque bounce cases are dealt with under Section 138 of the Negotiable Instruments Act, 1881. This provision makes the dishonour of a cheque for insufficiency of funds or similar reasons a criminal offence, carrying the possibility of imprisonment and fine. In Karnataka, Section 138 cases form a significant portion of the criminal docket in Magistrate courts. For both complainants and accused, it is important to understand how these proceedings work and what rights and obligations each side has.

When Does Section 138 Apply

A simple return of a cheque by the bank does not automatically attract criminal liability. The law requires certain conditions to be met. The cheque must have been drawn for the discharge of a legally enforceable debt or liability. It should be presented within its validity period, usually three months from the date of issue. If dishonoured, the payee must issue a legal demand notice within 30 days from receiving the bank's return memo. If the drawer fails to pay within 15 days of receiving the notice, a complaint under Section 138 can be filed. Only when all these requirements are fulfilled does the offence get completed.

Where to File the Complaint

Jurisdiction in cheque bounce cases is determined by the location of the payee's bank. This means that a complaint can be filed before the Magistrate court where the payee maintains the bank account into which the cheque was deposited. Complaints must be filed within 30 days from the expiry of the 15-day notice period.

The Proceedings in Court

Once a complaint is filed with the Magistrate along with affidavits, documents, and requisite court fees, the court scrutinises the complaint. If satisfied, it takes cognizance and issues summons to the accused. The accused is required to appear and can apply for bail at this stage, as the offence is bailable. Thereafter, the trial proceeds with evidence of the complainant by affidavit, cross-examination, and evidence of the accused if produced. Final arguments follow, and the Magistrate delivers judgment. If convicted, the accused may face imprisonment of up to two years, fine up to twice the cheque amount, or both.

Rights and Defences of the Accused

The law presumes that the cheque was issued for consideration, but this presumption is rebuttable. The accused can contest the complaint by showing that there was no legally enforceable debt, that the cheque was misused, or that it was issued for security without liability. Technical defences such as improper notice, delay in filing, or jurisdictional errors may also be raised. Producing evidence of repayment, absence of liability, or errors in the complainant's documents can strengthen the defence.

Remedies for the Complainant

For the payee, a Section 138 complaint is a strong tool to recover dues. Successful prosecution not only imposes criminal liability but often results in compensation orders. Courts frequently direct the accused to pay the cheque amount with interest or an additional sum as compensation. If the accused fails to comply, execution proceedings can be initiated. Additionally, appeals and revisions are available if either party is dissatisfied with the outcome.

Practical Considerations

Both parties should approach Section 138 proceedings with seriousness, as they move quickly compared to other criminal cases. For complainants, ensuring that all timelines—such as issuing notice within 30 days and filing within 30 days thereafter—are strictly followed is essential. Maintaining records such as the original cheque, return memo, copy of the demand notice, and proof of delivery of notice is critical. For accused persons, responding promptly to summons, applying for bail, and preparing defences with supporting documents can make the difference between conviction and acquittal. Settlements are common in these matters, and courts actively encourage compounding of offences to resolve disputes.

Conclusion

Cheque bounce cases under Section 138 of the Negotiable Instruments Act remain one of the most widely used remedies for creditors in India. While the law imposes strict liability to maintain confidence in financial transactions, it also provides safeguards to prevent misuse. In Karnataka, these cases are handled on a fast-track basis, but they demand careful compliance with legal requirements. At LNN Legal, we regularly represent both complainants and accused in cheque dishonour cases before Magistrate courts across Karnataka, offering strategic advice and representation to secure the best possible outcomes.