The issuance of cheques remains a prevalent method of discharging financial obligations in India. However, the dishonour of a cheque, commonly referred to as ‘cheque bounce,’ can disrupt financial transactions and lead to legal complications.
The Indian legal framework, primarily governed by the Negotiable Instruments Act, 1881, provides specific remedies to address such situations.
Statutory Framework Governing Cheque Bounce
The dishonour of a cheque due to insufficiency of funds or the account being closed constitutes an offence under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter “the Act”). The Act was amended in 1988 to include provisions that criminalise such dishonour, thereby infusing sanctity into commercial transactions and deterring willful defaulters.
Essential Ingredients of Offence under Section 138:
To constitute an offence under Section 138, the following elements must co-exist:
1. A cheque must be drawn by the drawer on an account maintained by him.
2. The cheque must be issued for the discharge, in whole or in part, of any legally enforceable debt or liability.
3. The cheque must be presented within its validity period (usually three months from the date of issue).
4. The cheque is returned unpaid by the bank due to:
- Insufficiency of funds, or
- Exceeds arrangement, or
- Account closed, or
- Payment stopped by the drawer.
5. The payee or holder in due course issues a legal demand notice in writing to the drawer within 30 days from the date of receiving information from the bank regarding return of the cheque.
6. The drawer fails to make payment within 15 days of receipt of the said notice.
Upon fulfilment of the above conditions, the offence under Section 138 is deemed to be complete, and the complainant becomes entitled to initiate prosecution.
Penalty: Under Section 138, the drawer may be punished with:
- Imprisonment for a term which may extend to two years, or
- Fine which may extend to twice the amount of the cheque, or
- Both.
Pre-Litigation Measures — Legal Notice and Its Strategic Importance
Before initiating formal litigation under Section 138 of the Negotiable Instruments Act, 1881, it is mandatory to issue a legal notice to the drawer of the dishonoured cheque. This step not only forms a statutory prerequisite but also serves as a critical opportunity to resolve the matter amicably.
Legal Demand Notice – Requirements and Content
As per the proviso to Section 138(b), the payee or holder in due course must issue a written demand notice to the drawer within 30 days of receiving information from the bank regarding the return of the cheque. The notice must:
1. Clearly state the details of the dishonoured cheque, including cheque number, date, amount, and reason for dishonour.
2. Assert that the cheque was issued for a legally enforceable debt or liability.
3. Demand payment of the cheque amount within 15 days from the date of receipt of the notice.
4. Mention the intention to initiate legal proceedings under Section 138 if payment is not made within the stipulated time.
Mode of Service: The notice must be served either:
- By registered post with acknowledgement due (RPAD),
- By courier with delivery proof, or
- By email or other digital means (as recognized by courts in recent judgments, provided proof of delivery is ensured).
Only upon failure to receive payment within 15 days of receipt of this notice, does the cause of action arise to file a complaint under Section 138.
Initiating Criminal Proceedings under Section 138
Upon the drawer’s failure to comply with the legal notice within the prescribed 15-day period, the payee or holder in due course becomes entitled to initiate criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881. This process is structured and time-bound to ensure efficacy and legal precision.
Jurisdictional Aspects:
Pursuant to the amendment introduced by the Negotiable Instruments (Amendment) Act, 2015 and reaffirmed in Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129 (prior to amendment) [1], the jurisdiction to file a complaint lies with the court within whose local limits the bank branch of the payee (i.e., where the cheque was presented for collection) is situated.
Filing the Complaint:
The complaint must be filed:
- Within one month from the date on which the cause of action arises (i.e., after expiry of 15 days from receipt of legal notice),
- Before a Magistrate of First Class or Metropolitan Magistrate.
The complaint should include:
1. Details of the transaction and cheque,
2. Copy of the dishonoured cheque,
3. Bank memo indicating reason for dishonour,
4. Copy of legal notice and postal/courier/email proof,
5. Affidavit or verification statement by the complainant.
Cognizance and Summons:
Upon receipt, the Magistrate may take cognizance under Section 190 of the Criminal Procedure Code, 1973, and issue summons to the accused for appearance.
Compounding of Offence:
Section 147 of the Act makes the offence compoundable. Therefore, at any stage of the proceedings, parties may choose to settle the matter with court permission.
This streamlines the litigation process and enhances the prospect of fast-track recovery through the penal mechanism.
Civil Remedies for Recovery — Parallel Recourse under Civil Law
While criminal prosecution under Section 138 of the Negotiable Instruments Act, 1881 serves as a deterrent, it does not automatically result in recovery of the cheque amount. To seek actual restitution, the complainant may simultaneously or independently initiate civil proceedings for recovery of dues.
Legal Basis for Civil Action:
1. Suit for Recovery:
A suit may be filed under Order XXXVII of the Code of Civil Procedure, 1908 (Summary Suit), which is a faster procedure available for claims based on negotiable instruments, including cheques.
2. Jurisdiction:
The suit should be instituted in a civil court having territorial and pecuniary jurisdiction over the transaction or the defendant’s place of residence or business.
3. Limitation Period:
The limitation for filing a suit for recovery is three years from the date on which the cause of action arises (i.e., the date of cheque dishonour or last demand).
Summary Suit Procedure – Key Features:
- Unlike ordinary suits, leave to defend is not granted to the defendant as a matter of right.
- The defendant must seek the court’s permission to defend the suit by disclosing substantial defence.
- If leave is refused, the suit is decreed summarily in favour of the plaintiff.
Attachment Before Judgment (Order XXXVIII Rule 5 CPC):
The plaintiff may also seek pre-judgment attachment of the defendant’s property to secure the claim, especially if there is apprehension that the defendant may alienate or dispose of assets to frustrate recovery.
Civil suits provide a direct route for money recovery with the added benefit of enforceable decrees and attachment of property. When paired with criminal prosecution, they create comprehensive pressure on the defaulter to settle dues promptly.
Execution of Decree and Enforcement Mechanisms
After obtaining a favourable decree from the civil court or a conviction/order of compensation from the criminal court under Section 138, the focus shifts to enforcement and execution — the final stage in securing monetary recovery.
Execution of Civil Decree:
Under Order XXI of the Code of Civil Procedure, 1908, the decree-holder can initiate execution proceedings, which may include:
1. Attachment and Sale of Movable or Immovable Property of the judgment debtor,
2. Garnishee Orders for attachment of debts owed to the judgment debtor,
3. Arrest and Detention in Civil Prison (in exceptional cases),
4. Appointment of Court Receiver for management and control of assets.
The application for execution must be filed in the same court which passed the decree, or the court to which the decree is transferred.
Execution of Compensation under Criminal Proceedings:
In criminal cases under Section 138, the court may direct payment of compensation under Section 357(3) of the CrPC, either in lieu of or in addition to fine. Upon failure to pay:
- The complainant can apply for issuance of distress warrant under Section 431 read with Section 421 CrPC to recover the amount as fine.
- Non-payment may also lead to imprisonment, but recovery of money remains the priority.
Lok Adalat and Alternate Dispute Resolution:
Given the backlog of cases, courts may refer matters to Lok Adalats or facilitate mediation/settlement at various stages. A settlement recorded in Lok Adalat has the status of a civil decree, enforceable like a court judgment.
Bank Recovery Tools (For NBFCs/Banks):
If the payee is a financial institution, it may also invoke:
- SARFAESI Act, 2002, for enforcement of security interest, or
- Recovery of Debts and Bankruptcy Act, 1993 (if the claim amount exceeds ₹20 lakhs and falls within DRT jurisdiction).
Conclusion
The Indian legal framework offers a robust dual-channel remedy — criminal deterrence under the Negotiable Instruments Act and civil recovery under CPC. Efficient drafting of notices, timely filing of complaints/suits, and persistent follow-up on execution proceedings form the bedrock of successful cheque bounce recovery strategies.
For swift and strategic recovery, legal practitioners must seamlessly coordinate statutory timelines, judicial forums, and enforcement tools, thereby converting legal entitlement into actual realisation.
Frequently Asked Questions (FAQs) related to cheque bounce and recovery
1. What is the time limit for filing a complaint under Section 138 of the Negotiable Instruments Act?
A complaint must be filed within one month from the date on which the cause of action arises. The cause of action arises after 15 days from the date of receipt of the legal demand notice, provided the drawer fails to make the payment.
2. Can a civil suit and a criminal complaint be filed simultaneously for cheque bounce?
Yes. The Supreme Court has clarified that both civil and criminal proceedings can be pursued simultaneously, as they serve different purposes — civil action for recovery of money, and criminal action to punish the drawer for the offence.
3. What is the penalty for a bounced cheque under Section 138?
The drawer of the cheque may face:
- Imprisonment up to two years, or
- Fine up to twice the cheque amount, or
- Both, along with directions to pay compensation to the complainant.
4. Is it mandatory to send a legal notice before filing a case for cheque bounce?
Yes. Issuance of a written demand notice within 30 days from the date of cheque return is mandatory under Section 138. If no notice is served, the complaint is not maintainable.
5. Can the accused be arrested immediately upon cheque bounce?
No. Cheque bounce is a bailable offence. The process begins with issuance of summons. Arrest may be considered only in exceptional circumstances, such as repeated non-appearance despite court orders.
[1]https://indiankanoon.org/doc/100995424/
