Cheque-bounce cases are one of the most common financial offences in India. With growing digital and cheque-based transactions, the dishonour of cheques has serious civil and criminal consequences under the Negotiable Instruments Act, 1881 (“NI Act”).
For Delhi residents, understanding Section 138 of the NI Act becomes indispensable, given the rise of criminal activities surrounding cheques. Section 138 of the NI Act makes cheque-bounce matters a criminal offence when a cheque is returned unpaid for lack of funds or for exceeding an arrangement with the bank. Local courts like Tis Hazari, Saket, Karkardooma, and Dwarka handle thousands of such cases each year, making Delhi one of the most active jurisdictions for cheque-bounce litigation.
What Is Cheque Bounce?
A cheque bounce occurs when a cheque issued to discharge a legally enforceable debt or liability is dishonoured by the bank. The most frequent reasons for dishonour include:
- Insufficient funds in the drawer’s account;
- Signature mismatch or overwriting;
- Account closure or stale cheque;
- Stop payment instructions issued by the drawer;
- Technical errors, such as incorrect date or figure mismatch.
It’s important to distinguish between civil debt recovery and criminal prosecution under Section 138. While civil recovery focuses on getting the money back, Section 138 adds criminal liability to deter misuse of cheques and uphold commercial credibility.
For instance, if a builder issues a refund cheque to a homebuyer that bounces, the buyer can not only seek repayment through a civil suit or consumer complaint but also initiate criminal proceedings under Section 138 NI Act.
Key Ingredients of Section 138 NI Act
Section 138 reads:
“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 … is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient or that it exceeds the arrangement … such person shall be deemed to have committed an offence…”
To constitute an offence under this provision, the following five essential ingredients must be met:
- Legally enforceable debt or liability — The cheque must have been issued to discharge a valid and subsisting obligation.
- Issuance of cheque — The cheque must have been voluntarily issued by the drawer.
- Dishonour by bank — The cheque must be returned unpaid with a return memo specifying the reason (e.g., “Funds Insufficient”).
- Statutory demand notice — The payee must issue a written demand notice within 30 days of receiving the dishonour memo.
- Failure to pay within 15 days — If the drawer fails to make payment within 15 days of receiving the notice, the cause of action arises for filing a complaint.
The complaint must then be filed before the Metropolitan Magistrate having jurisdiction, often determined by the branch where the payee’s bank is situated.
In Delhi, these cases are commonly filed at the Tis Hazari Courts (Central District) or respective district courts, depending on jurisdiction.
Penalties and After-Effects under Section 138
The punishment prescribed under Section 138 NI Act is stringent:
“Imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.”
This dual nature of punishment, imprisonment and/or fine, reflects the legislature’s intent to maintain the sanctity of financial transactions.
Impact on Credit Score
While the NI Act itself doesn’t directly affect a person’s CIBIL or credit score, banks and financial institutions take note of criminal proceedings for cheque-bounce. Repeated offences may lead to account freezing, difficulty in obtaining loans, and reporting to credit bureaus as part of internal risk assessments.
Civil Damages and Compensation
Apart from criminal liability, the drawer may also be directed to pay compensation to the complainant under Section 357 CrPC. Delhi courts often grant compensation equal to or exceeding the cheque amount to cover litigation costs and delays.
Case Laws and Delhi High Court Observations
1.Dashrath Rupsingh Rathod v. State of Maharashtra[1]
In this landmark decision, the Supreme Court clarified the jurisdictional rule for cheque-bounce cases under Section 138 of the NI Act. It held that the complaint must be filed in the court within whose territorial jurisdiction the payee’s bank (where the cheque was presented for collection) is situated.
This ruling was aimed at preventing harassment of accused persons who were previously dragged into distant jurisdictions where the drawer’s bank was located. The judgement thus brought much-needed procedural uniformity and ensured that the place of dishonour, not the place of issuance, determines jurisdiction.
2.M/s Mekaster Tools Pvt. Ltd. v. S.K. Rajpal [2]
The Delhi High Court in Mekaster Tools reaffirmed that Section 138 applies even when a cheque represents a partial discharge of a larger debt. The Court rejected the defence that only cheques covering the full liability attract criminal consequences, clarifying that the law covers “any amount of money” due under a legally enforceable obligation.
By extending the scope to partial liabilities, the judgement reinforced the principle that cheque dishonour undermines commercial integrity irrespective of the quantum involved, and thus warrants prosecution under the NI Act.
3.Sandeep Agarwal v. State (NCT of Delhi) [3]
In Sandeep Agarwal, the Delhi High Court addressed whether issuing a “stop-payment” instruction to one’s bank shields the drawer from liability under Section 138. The Court held that it does not. Unless the drawer can establish a genuine, pre-existing dispute about the underlying transaction, a stop-payment order amounts to deliberate evasion.
The ruling emphasized that the presumption of debt under Section 139 remains intact, and mere invocation of stop-payment does not constitute a valid defence. This strengthened the deterrent value of the provision against misuse of cheques as instruments of credit.
Consumer-Complaint Angle: Dual Remedy
When a cheque-bounce arises from the purchase of goods or services, such as defective goods or a failed refund, the payee can simultaneously file a consumer complaint under the Consumer Protection Act, 2019.
For example, if a homebuyer’s refund cheque from a developer bounces, they can:
- File a criminal complaint under Section 138 before the Magistrate, and
- Approach the Delhi State Consumer Disputes Redressal Commission seeking a refund and compensation for harassment or mental agony.
Delhi’s Consumer Commissions (e.g., State Commission at ITO, District Commissions at Saket, Janakpuri, and Nand Nagri) have consistently held that cheque dishonour amounts to a deficiency in service, entitling consumers to both refunds and compensation.
FAQs on Cheque Bounce Cases in India
What are the key legal defences available to an accused in a cheque-bounce case?
The most common defence is to rebut the presumption under Section 139 of the NI Act, which assumes that the cheque was issued towards a legally enforceable debt. The accused can challenge this by showing that the cheque was issued as security, that no debt was due, or that the liability had already been discharged. Documentary evidence, such as ledgers, correspondence, or bank statements, can help disprove liability.
Delhi courts, including the Rouse Avenue and Tis Hazari benches, have repeatedly held that the burden on the accused is only to raise a probable defence, not to prove innocence beyond a reasonable doubt.
How do Delhi courts handle multiple cheque-bounce complaints arising from a single transaction?
When several cheques are issued for instalment payments under one transaction, Delhi magistrates often club proceedings to avoid multiplicity of trials. The guiding precedent is the Supreme Court’s ruling in Aneeta Hada v. Godfather Travels & Tours Ltd. [4], read with Delhi High Court’s procedural directions allowing joint trial or consolidation if the complainant and accused are the same in all complaints.
This practice helps achieve judicial economy and consistent outcomes while still maintaining separate convictions for each dishonoured cheque.
Conclusion
Section 138 of the Negotiable Instruments Act, 1881 remains a cornerstone of India’s commercial law framework. It reinforces trust in negotiable instruments by imposing clear penalties for cheque dishonour.
For Delhi residents, where thousands of such cases are filed annually, understanding the legal process — from notice to complaint and trial — is critical. Whether you are a business owner, freelancer, or consumer, staying compliant with banking practices and record-keeping is the best safeguard against cheque-bounce complications.
If you’re facing a cheque-bounce issue in Delhi, consult a cheque-bounce lawyer nearby who is experienced in NI Act litigation and consumer law to protect your rights effectively.
