Cheque Bounce Cases, Section 138, Indore

A dishonoured cheque gives rise to two distinct remedies: a complaint under Section 138 of the Negotiable Instruments Act 1881, which is criminal in form, and a civil suit for recovery of the amount. They are not alternatives in the strict sense and are often pursued together, but they work quite differently and the timelines are not the same.

The statutory sequence

Section 138 is unforgiving about timing. The sequence must be followed exactly.

1. Presentation. The cheque must be presented to the bank within its period of validity, which is three months from the date it bears.
2. Dishonour. The bank returns the cheque with a memo stating the reason, most commonly insufficiency of funds or that the amount exceeds the arrangement.
3. Demand notice. A written notice demanding payment must be issued to the drawer within thirty days of receiving information of the dishonour.
4. Fifteen days to pay. The drawer has fifteen days from receipt of the notice to make payment.
5. Complaint. If payment is not made, the complaint must be filed within thirty days of the expiry of that fifteen day period.

A complaint filed before the fifteen days expire is premature. A complaint filed after the thirty day window has closed is time barred, though the court may condone the delay on sufficient cause being shown under the proviso to Section 142. The safest course is to treat all four periods as absolute.

Where the complaint is filed

Jurisdiction lies with the court within whose local limits the branch of the bank where the payee maintains the account is situated, that is, the branch at which the cheque was delivered for collection. At Indore the complaint is filed before the Judicial Magistrate First Class.

The presumption, and how it is met

Section 139 raises a presumption that the holder received the cheque in discharge of a debt or other liability. The burden then lies on the accused to rebut it. The presumption is rebuttable, and it is met not by a bare denial but by material: the absence of any underlying transaction, the absence of financial capacity on the part of the complainant to advance the sum alleged, an account that does not support the claim, a cheque issued as security rather than in discharge of a liability, or a cheque whose particulars were filled in without authority.

Defending a Section 138 complaint

The matters usually in issue are:

• Whether the demand notice was issued within thirty days and properly served
• Whether the complaint was filed within the thirty day window
• Whether the cheque was issued in discharge of a legally enforceable debt, or as security, or as a blank cheque
• Whether the complainant had the capacity to advance the amount alleged
• Whether the signatory is properly arrayed, and in the case of a company, whether the requirements of Section 141 for vicarious liability of directors are satisfied
• Whether the statutory notice was addressed to the correct address

Compounding and settlement

An offence under Section 138 is compoundable. The courts encourage settlement, and a matter can be compounded at any stage on payment, including through Lok Adalat. The Supreme Court has laid down a graded scale of costs for compounding at later stages, so a settlement reached early is materially cheaper than one reached after the evidence has been recorded.

The civil route

A suit for recovery of money is the civil remedy, and it is independent of the complaint under Section 138. It carries a three year limitation period and requires court fee on the amount claimed. It is useful where the sum is large, where there are multiple transactions rather than a single cheque, or where the cheque route has failed on a technical ground such as limitation. A summary suit under Order XXXVII of the Code of Civil Procedure is available on a negotiable instrument and can be quicker than an ordinary suit, because the defendant must obtain leave to defend.

Frequently asked questions

What is the time limit for filing a cheque bounce case?

The demand notice must be issued within thirty days of receiving information of dishonour from the bank. The drawer then has fifteen days to pay. If payment is not made, the complaint must be filed within thirty days of the expiry of that fifteen day period. The court may condone a delay in filing the complaint on sufficient cause being shown, but the thirty day notice period is not extendable.

What happens if the demand notice was not sent in time?

The complaint cannot be maintained on that cheque, because issuing the notice within thirty days is a condition of the offence under Section 138. If the cheque is still within its validity period of three months from its date, it can be presented again, and a fresh cause of action arises on a fresh dishonour, allowing a fresh notice to be issued in time.

Can a cheque given as security lead to a case under Section 138?

It depends on the facts. Section 139 presumes that the cheque was issued in discharge of a debt or liability, and the accused has to rebut that presumption. Where it is established that the cheque was handed over as security for a liability that had not crystallised, or that no enforceable liability existed on the date the cheque was presented, the complaint can fail. The question turns on the evidence about the underlying transaction.

Is jail a realistic outcome in a cheque bounce case?

Section 138 provides for imprisonment which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both. In practice the courts frequently direct compensation to the complainant under the sentencing provisions rather than a custodial sentence, particularly where the amount is paid. The offence is compoundable, and a substantial proportion of these matters end in settlement.

Should a civil suit be filed as well as a cheque bounce complaint?

They serve different purposes. The complaint under Section 138 is the faster pressure point and can result in compensation. A civil suit, particularly a summary suit under Order XXXVII, results in a decree that can be executed against the assets of the debtor. Where the sum is significant, or where the dealings go beyond the single cheque, both are commonly pursued. The limitation periods differ and should be checked separately.