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Dealing With A Cheque Bounced Cases: Complaint And Seeking Resolution

In this digital era , where the most of the payments being made digitally, through UPI or Net Banking, it is still a norm in many situations to make payments via specific instruments such as cheques, DD (demand drafts) & so on which in legal terminology are known as Negotiable Instruments. These are signed documents that are used in making payments, majorly in commercial transactions. It is an obligation to pay a certain sum, and these documents act as an unconditional assurance of that obligation.

The term "cheque bounce" is used in Section 138 of the Negotiable Instruments Act, 1881. This act provides remedies for parties after a cheque has bounced and outlines the process for seeking resolution in such cases. The objective of this article is to share related legal provisions and judgments to raise awareness among parties involved in cheque bounce cases.

According to Section 13 of the Negotiable Instruments Act, 1881, the three types of instruments and methods of payment covered under the act are cheques, bills of exchange, and promissory notes.

When a payment is made or is to be made by cheque, there is a possibility of the cheque bouncing, which is legally referred to as 'Dishonour of cheque'. Dishonour occurs when a bank cannot pay the money against the cheque due to reasons such as insufficient funds in the account or exceeding the agreed amount. But Before the discussing litigation aspects, it's important to understand these basic terminologies.

The Payments and Settlement Systems Act, 2007 governs electronic fund transfers like NEFT and RTGS. Section-25 addresses dishonour of these payments, and Section-25(5) specifies that the provisions for dishonour under Chapter XVII of the Negotiable Instruments Act, 1881 also apply to online payments.

Section 138 of the Negotiable Instruments Act, 1881 addresses cheque dishonour and introduces criminal liability for the drawer of the cheque. If a cheque is dishonoured, the drawer may face imprisonment up to two years, a fine up to twice the cheque amount, or both. This section aims to facilitate money recovery and deter negligent debtors by incorporating criminal consequences, thereby improving the ease of doing business in India. Special courts have been established to handle these cases due to their increasing frequency.

According to the Section-138 NIA, Act 1881 Dishonour of cheque for insufficiency, etc., of funds in the account - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both. Conditions that need to be fulfilled to Affix Liability under Section 138 that is:
  • The cheque must be drawn for discharge, in whole or in part, of a legally recoverable debt or liability.
  • The cheque must be presented within the prescribed period of three months from the date on which it is drawn or written, whichever is earlier.
  • The cheque must have been returned unpaid on account of insufficient funds or the amount being in excess of the limit agreed with the bank. Cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 occurs for two main reasons:
    • Insufficiency of Funds - The drawer's bank account lacks sufficient funds to cover the cheque amount.
    • Exceeding Arranged Limit - The cheque amount exceeds the agreed limit or arrangement with the bank for payment. These conditions must be met for a cheque to be considered dishonoured under this section.
  • Notice to the drawer: When a cheque is returned unpaid, the payee, or holder in due course, must send a written notice to the drawer demanding payment. This notice must be sent within 30 days of learning about the dishonour. The notice provides the drawer a chance to make the payment, even if the dishonour was unintentional.
  • Drawer fails to pay despite the notice: To invoke liability under Section 138, the drawer must fail to make the payment within 15 days of receiving the notice from the payee or holder in due course.


Also section 143 A of Negotiable Instrument Act provides that This section allows a court trying an offense under Section 138 of the Negotiable Instruments Act to order the drawer of a dishonoured cheque to pay interim compensation to the complainant. In summary trials or summons cases where the drawer pleads not guilty, or in other cases after charges are framed, the interim compensation can be up to 20% of the cheque amount. It must be paid within 60 days, with a possible extension of up to 30 days if the drawer shows sufficient cause. If the drawer is acquitted, the complainant must repay the interim compensation with interest within 60 days, or with a 30-day extension if sufficient cause is shown. The interim compensation can be recovered as a fine, and any subsequent fine or compensation awarded will be reduced by the amount of interim compensation paid.

Before filing a complaint under Section 138 of the Negotiable Instruments Act 1881, the notice must include the following points:
  • Sender Information: Specify on whose behalf the notice is being given.
  • Purpose: State that the notice is regarding the dishonour of a cheque.
  • Cheque Purpose: Mention the purpose for which the cheque was issued.
  • Cheque Details: Include the cheque number, amount, issuing bank, date of the cheque, and date of dishonour.
  • Dishonour Reason: State that the cheque was dishonoured and the reason for it.
  • Previous Request: Indicate that you previously requested payment, which was not fulfilled.
  • Legal Action Warning: Note that if payment is not made within 15 days of receiving the notice, you will file a complaint in court.
  • Payment Warning: State that if the amount is not paid within 15 days, you will file a complaint in the competent court.
  • Criminal Consequences: Warn that dishonour of the cheque is a criminal offence under Section 138, punishable by up to two years imprisonment, a fine up to double the cheque amount, or both.
  • Cheating Allegation: Mention that the dishonour amounts to cheating and deprives your client of their legitimate dues.
  • Jurisdiction: Indicate where you plan to initiate legal proceedings.


Can a power of attorney holder file a complaint under Section 138 of the N.I. Act?
A power of attorney holder can file a complaint under Section 138 of the Negotiable Instruments Act, 1881, provided that the power of attorney specifically authorizes them to take legal action on behalf of the principal. The power of attorney must include the authority to handle legal matters, including filing complaints for cheque dishonour. In the cases mentioned:
  • Smt. K.K. Verma vs. Union of India (2014): The Supreme Court confirmed that a power of attorney holder can file a Section 138 complaint if the power of attorney explicitly grants the authority to handle legal matters.
  • Rameshwar Prasad vs. D.D. Trading Co. (2014): The court upheld a Section 138 complaint by a power of attorney holder, emphasizing the need for specific authority in the power of attorney document.
  • N. R. Subramanian vs. M. J. Exports (2002): The court affirmed that a power of attorney holder can file a Section 138 complaint if their authority includes such actions.
Therefore, the power of attorney must clearly authorize the holder to file legal complaints, including those under Section 138 of the Negotiable Instruments Act.

Here's a step-by-step procedure for filing a complaint under Section 138 of the Negotiable Instruments Act, 1881:

  1. Cognizance: The Magistrate takes cognizance of the case under Section 200 of the Cr.P.C/ Section 223 BNSS. A presumption exists that the cheque was issued to discharge a debt, which the defence must counter.
  2. Issuance of Summons: Under Section 204 of the Cr.P.C.1973/ Section 227 of BNSS, a summons is issued to the accused to appear in court. If the summons is not delivered or the accused fails to appear, a warrant may be issued. Summons can be delivered by hand, postal mail, or, as a last resort, published in a local newspaper.
  3. Possible Bail: If a non-bailable warrant is issued, the accused can apply for bail under Section 437 of the Cr.P.C/ 480 of BNSS. The court may decide whether to grant bail and whether the accused must appear in person at each hearing.
  4. Plea: The accused pleads 'not guilty,' and the trial begins.
  5. Evidence: Evidence is presented under Section 145 of the Act. This includes the returned cheque, bank slip, return memo, and affidavits from the complainant, accused, and witnesses.
  6. Arguments: Arguments are based on the evidence presented. The defence may challenge the evidence or the presumption under Section 139, arguing that it should not be admitted or is unreliable.
  7. Judgement: The court delivers a judgment, which may result in the accused being convicted or acquitted. The judgment will detail the evidence and the reasons for the court's decision.
Therefore, in the digital age, despite the prevalence of electronic payments, negotiable instruments like cheques remain significant in commercial transactions. Under Section 138 of the Negotiable Instruments Act, 1881, cheque dishonour due to insufficient funds or exceeding limits carries criminal liability, including potential imprisonment and fines. To address a cheque bounce, the drawer must be given a formal notice and a chance to rectify the issue within 15 days.

Complaints can be filed by the holder of a power of attorney if authorized explicitly. The process involves the magistrate's cognizance, issuance of summons, possible bail, plea, evidence presentation, and final judgment. This framework aims to facilitate recovery and deter negligent behavior, ensuring smoother business operations and legal recourse in case of cheque dishonour. Written By:

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