Negotiable Instruments Act, 1881 —
Section 138 Complete Guide
The Negotiable Instruments Act, 1881 is the foundational legislation governing cheques, bills of exchange, and promissory notes in India. Section 138, inserted in 1988 and substantially amended in 2002 and 2018, creates criminal liability for dishonour of cheques — making it one of the most litigated provisions in Indian criminal courts.
Unified Chambers and Associates, led by Advocate Subodh Bajpai, handles Section 138 complaints, Section 143A interim compensation, and Section 141 company/director liability proceedings before Magistrate courts across India.
Critical Sections of the NI Act
Section 6
Definition of Cheque
A cheque is a bill of exchange drawn on a specified banker, not expressed to be payable otherwise than on demand.
Section 138
Cheque Bounce Offence
Dishonour of cheque for insufficiency of funds. Criminal offence. Up to 2 years imprisonment and/or fine up to twice the cheque amount.
Section 139
Presumption in Favour of Holder
Court shall presume that the cheque was issued in discharge of a debt or legally enforceable liability. Accused must rebut this presumption.
Section 140
Defence of Accused
It is no defence for the accused to prove that they had reasonable grounds to believe the cheque would be paid when presented.
Section 141
Company/Director Liability
Where the offender is a company, every person in charge of and responsible for the business at the time of the offence is also liable.
Section 142
Cognizance of Offence
Court cannot take cognizance unless complaint is filed by payee or holder within 30 days of expiry of the notice period.
Section 143
Summary Trial
Section 138 offences tried as summary trials under CrPC. Court may convert to summons trial if case complexity demands.
Section 143A
Interim Compensation
Magistrate can direct accused to pay up to 20% of cheque amount as interim compensation at charge-framing stage. 2018 Amendment.
Section 147
Compounding of Offence
Section 138 offence can be compounded at any stage with Court permission — even after conviction. Full payment typically required.
NI Act Section 138 — FAQ
What is Section 138 of the Negotiable Instruments Act?
Section 138 of the Negotiable Instruments Act, 1881 creates a criminal offence for dishonour of a cheque for insufficiency of funds or if the amount exceeds the arrangement with the bank. Where a cheque is returned unpaid, the payee can issue a statutory demand notice and, if unpaid within 15 days, file a criminal complaint before the Magistrate. On conviction, the drawer is liable for imprisonment up to 2 years and/or fine up to twice the cheque amount.
What are the three mandatory conditions for a Section 138 complaint?
Three conditions must be satisfied: (1) The cheque must have been presented to the bank within its validity period (3 months from date); (2) The payee must have sent a written demand notice within 30 days of receiving the bank's return memo, demanding payment within 15 days; (3) The drawer must have failed to make payment within 15 days of receiving the notice. All three conditions are jurisdictional prerequisites — if any is absent, the complaint is not maintainable.
What is Section 143A interim compensation?
Section 143A (inserted by the NI Act Amendment Act 2018) empowers the Magistrate to direct the accused to pay interim compensation up to 20% of the cheque amount at the time of framing of charge or entry of plea of not guilty. This amount is payable within 60 days. On acquittal, the interim compensation is refunded with interest. This is a powerful tool to secure immediate partial recovery for the complainant during the pendency of the trial.
Who is liable for cheque bounce by a company?
Under Section 141 of the NI Act, where the person committing the Section 138 offence is a company, every person who at the time of the offence was in charge of and responsible for the conduct of the business of the company is also deemed guilty. This typically includes the Managing Director, signing Director, Chief Financial Officer, and Company Secretary. However, a director who proves that the offence was committed without their knowledge or that they exercised due diligence to prevent it can avoid liability.
Where must a cheque bounce complaint be filed?
Following Dashrath Rupsingh Rathod v. State of Maharashtra [2014] 9 SCC 129 and the subsequent NI Act Amendment 2015, the complaint under Section 138 must be filed before the court having jurisdiction over the area where the bank branch of the payee is situated — i.e., where the cheque was presented for payment and returned unpaid. This is a strict rule — filing in the wrong court results in dismissal.
File Your Cheque Bounce Case
Advocate Subodh Bajpai · Unified Chambers and Associates · Delhi High Court