Cheque Bounce Under Section 138 NI Act: What Has Changed

A cheque bounce under Section 138 of the Negotiable Instruments Act, 1881 is still one of the most common disputes in Indian courts, and much of the advice given on it is out of date. The section itself is short, but the procedure around it has been reshaped by statutory amendments in 2015 and 2018 and, more recently, by a series of Supreme Court decisions on interim compensation, settlement costs, director liability, appeal deposits and delay. This article sets out the basic framework and then the points that have changed.

The basic framework: when a dishonoured cheque becomes an offence

Dishonour of a cheque is not in itself a crime. Section 138 makes it an offence only when a series of conditions is met:

• the cheque was drawn on an account maintained by the drawer, for the discharge in whole or in part of a legally enforceable debt or other liability;
• it was returned unpaid, for insufficiency of funds or because it exceeds the amount arranged to be paid from the account;
• it was presented within six months from the date on which it is drawn, or within the period of its validity, whichever is earlier (proviso (a));
• the payee or holder in due course made a written demand for payment within thirty days of receiving information from the bank about the dishonour (proviso (b)); and
• the drawer failed to pay within fifteen days of receiving that notice (proviso (c)).

The cause of action arises only when the fifteen days expire without payment. Under Section 142(1)(b), the complaint must then be filed within one month of the date on which the cause of action arises. The offence is punishable with imprisonment of up to two years, or a fine of up to twice the amount of the cheque, or both.

Once execution of the cheque is admitted, Section 139 raises a presumption that it was issued in discharge of a debt or liability. The presumption is rebuttable, but the burden of rebutting it lies on the accused. In Sanjabij Tari v. Kishore S. Borcar (2025 INSC 1158, decided 25 September 2025), the Supreme Court held that a loan advanced in cash above the limit in Section 269SS of the Income Tax Act does not, for that reason alone, become unenforceable or displace the presumption; a breach of Section 269SS attracts a tax penalty, not invalidity of the debt.

Interim compensation under Section 143A is not automatic

Section 143A, inserted by the Negotiable Instruments (Amendment) Act, 2018, allows the trial court to direct the drawer to pay interim compensation of up to twenty per cent of the cheque amount. It must be paid within sixty days, extendable by thirty days, and if the accused is later acquitted, the complainant must repay it with interest at the bank rate.

For some time, many trial courts treated an order under Section 143A as almost routine. In Rakesh Ranjan Shrivastava v. State of Jharkhand (2024 INSC 205, decided 15 March 2024), the Supreme Court held that the power is discretionary, observing that the word “may” used in the section can never be construed as “shall”. The Court indicated the matters to be weighed:

• whether the complainant has made out a prima facie case;
• whether the accused has raised a plausible defence, in which case interim compensation may be refused;
• the financial position of the accused; and
• if compensation is ordered, the appropriate quantum within the ceiling of twenty per cent, having regard to the nature of the transaction and the relationship between the parties.

The order must therefore carry reasons. A complainant who wants interim compensation should place enough material on record to show a prima facie case; an accused who opposes it should set out the defence early rather than leaving it for cross-examination.

Settling the case: compounding costs revised in Sanjabij Tari

Every offence under the Act is compoundable under Section 147, and most cheque cases end in settlement. In 2010, the Supreme Court had framed guidelines imposing graded costs on parties who compounded late. In Sanjabij Tari, the Court revised that scale. The cost is payable to the legal services authority or such authority as the court directs:

The same judgment issued procedural directions to trial courts. Among them:

• summons may be served by multiple modes, including dasti service by the complainant and electronic service where the applicable rules permit, and the complainant must file an affidavit of service;
• district courts are to provide online payment facilities through QR codes or UPI links, and the summons must tell the accused that the cheque amount can be paid at the initial stage, after which the court can pass orders for compounding;
• every complaint must carry a standard synopsis giving particulars of the cheque, the dishonour, the statutory notice and the cause of action;
• there is no requirement to issue notice to the accused at the pre-cognizance stage under Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023; and
• trial courts must record cogent reasons before converting a summary trial into a summons trial.

The practical message for an accused who intends to pay is that the earliest stage is now also the cheapest.

Directors and Section 141: a designation is not an averment

Where the drawer is a company, Section 141 extends liability to every person who, at the time of the offence, was in charge of and responsible to the company for the conduct of its business. The complaint must plead this. Since SMS Pharmaceuticals Ltd. v. Neeta Bhalla (2005), the rule has been that the complaint must contain a specific averment about the role of each person sought to be made liable.

In Sunita Palita v. Panchami Stone Quarry (decided 1 August 2022), the Supreme Court restated the distinctions:

• a managing director or joint managing director is, by virtue of the office, in charge of the company’s business, and no further averment is needed for that purpose;
• a director or officer who signed the cheque on behalf of the company can be proceeded against;
• for other directors, and especially non-executive and independent directors who take no part in day-to-day affairs, a bare statement that they were in charge of and responsible for the business does not satisfy Section 141. The complaint must set out facts showing their actual role.

For complainants, this means doing the homework before filing: board positions, signatories and the people who actually dealt with the transaction.

Where to file: Section 142(2)

After the Supreme Court’s 2014 decision in Dashrath Rupsingh Rathod v. State of Maharashtra tied jurisdiction to the drawee bank, Parliament inserted Section 142(2) by the 2015 amendment. Where a cheque is delivered for collection through an account, the complaint lies before the court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains the account is situated. Where the cheque is presented otherwise than through an account, jurisdiction lies where the drawer’s branch is situated.

In Prakash Chimanlal Sheth v. Jagruti Keyur Rajpopat (decided 25 July 2025), the Supreme Court confirmed that what matters under clause (a) is the branch where the payee maintains the account, not the place where the cheque happened to be physically deposited. Section 142A, inserted at the same time, requires later complaints by the same payee against the same drawer to be filed before the court in which the first complaint is pending.

Appeals: the Section 148 deposit is the rule, but not an absolute one

When a convicted drawer appeals, Section 148 allows the appellate court to order a deposit of a minimum of twenty per cent of the fine or compensation awarded by the trial court, within sixty days, extendable by thirty days. The amount may be released to the complainant during the appeal and is refundable with interest if the appellant is acquitted.

In Muskan Enterprises v. State of Punjab (2024 INSC 1046, decided 19 December 2024), the Supreme Court followed its earlier decision in Jamboo Bhandari v. M.P. State Industrial Development Corporation (2023) and held that the section uses “may”, so the appellate court retains discretion. Ordinarily a deposit will be directed, but the court may depart from it in an exceptional case, for instance where it is satisfied that the condition would be unjust or would effectively deprive the appellant of the right of appeal. Reasons must be recorded for such a departure.

Delay: condone first, then take cognizance

The proviso to Section 142(1)(b) allows a court to take cognizance of a complaint filed after the one-month period if the complainant shows sufficient cause. The order of steps matters. In S. Nagesh v. Shobha S. Aradhya (2026 INSC 27, decided 6 January 2026), the complaint had been filed two days late. The Magistrate took cognizance on the day of filing and condoned the delay only years later. The Supreme Court held that the satisfaction resulting in condonation of the delay must precede the act of taking cognizance, and quashed the complaint.

For complainants, the safest course is not to be late at all: diarise the date of receipt of the bank’s return memo, the thirty-day window for notice, the fifteen days after service, and the one month after that. If delay is unavoidable, file an application for condonation with the complaint and ensure it is decided before cognizance is taken.

Frequently Asked Questions

Within how many days must a cheque bounce notice be sent?

The written demand must be made within thirty days of receiving information from the bank that the cheque has been returned unpaid. The drawer then has fifteen days from receipt of the notice to pay. If payment is not made, the complaint must be filed within one month of the expiry of those fifteen days.

Is interim compensation of 20% mandatory in a Section 138 case?

No. Section 143A uses the word “may”, and in Rakesh Ranjan Shrivastava v. State of Jharkhand (2024) the Supreme Court held that the power is discretionary. The court must consider whether there is a prima facie case and a plausible defence, and twenty per cent is a ceiling rather than a fixed rate.

What does it cost to settle a cheque bounce case?

Under the scale revised in Sanjabij Tari v. Kishore S. Borcar (2025), no additional cost is payable if the case is compounded before the accused’s evidence. Costs of 5%, 7.5% and 10% of the cheque amount apply at later stages, up to the Supreme Court. This is in addition to the amount agreed between the parties.

Can every director of a company be prosecuted for a bounced company cheque?

Not automatically. Section 141 requires a specific averment about each person’s role in the conduct of the company’s business. A managing director and the signatory of the cheque stand on a different footing, but a non-executive or independent director cannot be prosecuted on the strength of a designation alone.

Can a court condone delay in filing the complaint after taking cognizance?

No. In S. Nagesh v. Shobha S. Aradhya (2026), the Supreme Court held that delay must be condoned before cognizance is taken. Where cognizance was taken first, the complaint was quashed.

This article is for general information and is not legal advice.

This article is for general information only and is not legal advice or an invitation to engage the firm. Laws and judgments change; please obtain specific legal advice before acting.