Home > Legal Resources > Civil & Commercial Dispute Resolution FAQs > Section 138 NI Act — Cheque Dishonour FAQs
Section 138 NI Act — Cheque Dishonour FAQs
India │ Section 138 cheque-dishonour complaints: statutory ingredients, timelines, presumptions and defences, notice and filing, BNSS procedure, interim compensation, appeal deposits, compounding and practical case management.
Important scope note. This is a legal reference, not a case opinion. It provides general educational information on Section 138 of the Negotiable Instruments Act, 1881, read with the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), current Supreme Court directions and related procedural rules. Local court practice, applicable notifications and the facts and documents of the particular matter must be checked before filing, defence, settlement or appeal.
A. Ingredients, Dishonour and Statutory Timeline
The cheque must be drawn by the accused on an account maintained by that person; it must represent, wholly or partly, a legally enforceable debt or other liability; it must be presented within its legally effective validity period; it must be returned unpaid in circumstances attracting Section 138; the payee or holder in due course must issue the statutory written demand notice within thirty days of receiving information of dishonour; and the drawer must fail to make payment within fifteen days of receiving that notice. The complaint is then filed within the period prescribed by Section 142, subject to the statutory power to condone delay.
A cheque should presently be presented within three months from its date under the prevailing RBI validity rule. After receiving information from the bank that the cheque has been returned unpaid, the payee or holder in due course has thirty days to issue the written demand notice. The drawer then has fifteen days from receipt of the notice to make payment. If payment is not made, the cause of action arises on expiry of that fifteen-day period, and the complaint must be filed within one month from the date on which the cause of action arises, subject to condonation for sufficient cause under Section 142(1)(b). Every presentation, return, dispatch, delivery and filing date should be supported by records.
Yes, depending on the facts. Supreme Court precedent has made clear that Section 138 is not confined mechanically to the literal endorsement “funds insufficient”. Returns such as “account closed” or “stop payment”, and in appropriate cases a signature-related return, can attract Section 138 where the other statutory ingredients are satisfied. The bank memo, the drawer’s conduct and the underlying legally enforceable liability still matter; a particular return reason does not dispense with proof of the remaining ingredients.
Section 142(2) contains the special jurisdiction rule. Where the cheque is delivered for collection through an account, jurisdiction lies where the branch of the bank in which 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 drawee-bank branch is situated. Section 142A also contains rules for subsequent complaints against the same drawer and transfer or consolidation of cases.
Yes. A post-dated cheque ordinarily becomes legally effective as a cheque on the date written on it and may then be presented within its validity period. Liability under Section 138 depends on whether an enforceable debt or liability existed when the cheque became payable and was presented, together with compliance with the notice and complaint requirements.
Yes, if it remains within its validity period. The Supreme Court in MSR Leathers recognised that repeated presentation is permissible and that a prosecution may be founded on a later dishonour, provided the statutory notice and complaint timeline is correctly complied with for the dishonour relied upon. Each return memo should therefore be preserved and the chosen statutory chain should be clear.
B. Presumptions, Burden of Proof and Common Defences
Sections 118(a) and 139 create statutory presumptions in favour of the holder once execution of the cheque is admitted or proved. The court must then presume, unless the contrary is proved, that the cheque was issued for consideration and for discharge of a debt or liability. The presumption is rebuttable, but the accused must raise a probable defence on the standard applicable to rebuttal; a bare denial ordinarily does not suffice.
No. Supreme Court precedent, including Bir Singh and later cases, makes clear that voluntarily signing and handing over a blank cheque does not by itself prevent the statutory presumption from arising. Filling in particulars by another person does not automatically invalidate the cheque if the signature is admitted. The accused can still rebut liability by proving the actual purpose, lack of enforceable debt, misuse or another probable defence.
No. A cheque described as security can still attract Section 138 if, when it is presented, the underlying liability has crystallised and is legally enforceable. The court examines the agreement, due date, performance, amount outstanding and circumstances of presentation. A security-cheque defence is therefore factual rather than an automatic exemption.
Yes. Section 87 deals with material alteration of a negotiable instrument. An unauthorised material change, such as a change to the amount, date or payee that affects the legal effect of the instrument, can invalidate it against a party who did not consent. The defence requires proof of the alteration and lack of consent; an authorised completion of a signed blank cheque or a non-material correction is not the same thing.
No. In Sanjabij Tari v. Kishore S. Borcar, the Supreme Court clarified that contravention of Section 269SS may have tax consequences but does not by itself make the debt void or legally unenforceable for Section 138 purposes. Financial capacity, source of funds and documentary credibility can still become relevant if the accused raises a probable defence concerning the alleged transaction.
Potentially, yes. Section 25(3) of the Indian Contract Act recognises a written and signed promise to pay a debt barred by limitation as a valid contract. A signed cheque can, depending on its terms and the surrounding facts, be relied on as such a fresh promise; but the result is not automatic merely because a cheque exists. Whether limitation had already expired, whether the cheque amounts to the required promise, and whether the liability was otherwise legally enforceable may require evidence and legal analysis.
The statutory presumption does not disappear merely because financial capacity is questioned. The accused must first raise a probable defence from the complainant’s material, cross-examination or independent evidence. If that burden is discharged, the evidentiary burden can shift back to the complainant to prove the transaction and financial capacity. Sanjabij Tari reinforces that a bald allegation of incapacity, without credible supporting material, is insufficient.
A reply is not a statutory precondition to defending the case, but unexplained silence can support an adverse inference in an appropriate factual setting. Sanjabij Tari treats non-reply as relevant where the accused later raises a defence that could reasonably have been asserted immediately. A reply should be accurate and specific because unnecessary admissions can be equally damaging.
C. Statutory Notice, Complaint and Proper Parties
The notice should clearly identify the cheque, amount, date of dishonour and the bank return, and should make an unambiguous demand for payment of the cheque amount. Additional claims such as interest or costs can be stated separately, but the cheque amount should not be obscured by a vague consolidated demand. The notice, dispatch proof, tracking record and correct address should be preserved.
Correct dispatch to the drawer’s proper address can support a presumption of service where the postal record shows refusal or an unclaimed article, subject to the facts and applicable evidence law. C.C. Alavi Haji remains important on deemed service and the drawer’s opportunity to pay after receiving court summons. Electronic communications may support proof, but the statutory service record should be preserved carefully rather than relying only on an informal message.
Yes, but only through the statutory condonation mechanism. The proviso to Section 142(1)(b) permits the court to take cognizance after the prescribed period if the complainant satisfies it that there was sufficient cause for not filing within time. A delayed complaint should therefore be accompanied by a precise chronology, supporting affidavit and material explaining the delay.
Where liability is sought to be imposed vicariously under Section 141, the company is ordinarily required to be arraigned as an accused, subject to recognised legal exceptions. The complaint must also contain the necessary statutory averments against each officer sought to be prosecuted. Merely holding the designation of director is not enough: the pleading must ordinarily show that the person was in charge of and responsible to the company for the conduct of its business at the relevant time, unless the person’s liability rests on a distinct statutory basis such as having signed the cheque or on consent, connivance or neglect.
For Section 141, the expression “company” includes a firm or other association of individuals, and “director” in relation to a firm means a partner. The firm should ordinarily be arraigned, and a partner sought to be prosecuted vicariously must fall within the statutory test of responsibility for the conduct of the business or within the consent, connivance or neglect limb. Partnership status alone should not be treated as automatic criminal liability for every partner.
Yes, if the authority and knowledge requirements are satisfied. A.C. Narayanan permits a duly authorised Power of Attorney holder to file, verify and pursue a Section 138 complaint. The complaint or supporting affidavit should disclose the authority and the basis of the representative’s knowledge; a representative who has no knowledge of the transaction cannot ordinarily give evidence about facts known only to the principal. Corporate complainants should also preserve the relevant board resolution or other valid authorisation.
Section 138 permits imprisonment for a term that may extend to two years, or fine that may extend to twice the amount of the cheque, or both. The court may also award compensation under the applicable criminal-procedure framework. Sentencing, compensation, settlement and payment history remain fact-specific and are not determined merely by the face value of the cheque.
D. Cognizance, Summons and Trial under the BNSS Framework
No. Although the first proviso to Section 223 BNSS generally speaks of giving the accused an opportunity of hearing before cognizance of a complaint, the Supreme Court in Sanjabij Tari held that, because the NI Act is a special enactment with its own summary framework, no summons or hearing of the accused is required under Section 223 at the pre-cognizance stage of a Section 138 complaint.
Section 225 BNSS, corresponding broadly to the earlier Section 202 CrPC framework, requires postponement of process and an inquiry where the accused resides beyond the Magistrate’s territorial jurisdiction. The inquiry is directed to whether there is sufficient ground for proceeding and need not automatically become a full trial-like evidentiary exercise. This requirement is distinct from Sanjabij Tari’s holding that no pre-cognizance hearing of the accused under Section 223 BNSS is required in a Section 138 complaint.
Section 144 of the NI Act already permits specified postal or courier modes. Sanjabij Tari further directs that service should not be confined to ordinary modes: dasti service by the complainant is to be used in addition, and courts should also resort to electronic service in accordance with applicable BNSS rules or notifications. At filing, the complainant should provide verified email, mobile and messaging-app particulars of the accused where available and later file an affidavit of service.
Section 143 is designed to make Section 138 proceedings expeditious and ordinarily contemplates summary trial. The statute states that an endeavour should be made to conclude the trial within six months from filing, though this is not an automatic limitation period that terminates the case. Sanjabij Tari reiterates that conversion from summary trial to summons trial should be supported by cogent and sufficient reasons rather than done routinely.
Section 145 allows the complainant’s evidence to be given by affidavit, which can be read in evidence subject to the court’s powers and the accused’s right to seek examination or cross-examination as permitted by the statute. The documentary foundation—cheque, return memo, notice, service proof and underlying transaction record—should be organised so that the affidavit and exhibits are internally consistent.
Sanjabij Tari permits focused questioning at the initial post-cognizance stage under the applicable summons-case provision, now Section 274 BNSS. The court may ask whether the cheque belongs to the accused’s account, whether the signature is admitted, whether the cheque was issued or delivered, whether liability is admitted, what specific defence is raised and whether the accused wishes to compound. The purpose is early issue identification and appropriate use of the summary procedure.
In a summary or summons trial, the power arises after the accused pleads not guilty; in another kind of trial, it arises after framing of charge. The amount cannot exceed twenty per cent of the cheque amount. In Rakesh Ranjan Shrivastava v. State of Jharkhand (2024 INSC 205), the Supreme Court held that Section 143A is discretionary, not mandatory. The court must apply its mind to the prima facie case and defence and other relevant circumstances, record reasons, and separately consider the appropriate amount and any demonstrated financial distress.
E. Appeal, Deposit and Compounding
Section 148 empowers the appellate court to direct a deposit pending an appeal against conviction. If a deposit is ordered, the statutory amount is to be at least twenty per cent of the fine or compensation awarded by the trial court, and it is in addition to any interim compensation paid under Section 143A. Supreme Court precedent treats such a deposit as ordinarily expected, while recognising that an appellate court may make an exception for recorded reasons in an appropriate case rather than applying the condition mechanically.
Section 148 provides sixty days from the appellate court’s deposit order, with a further period not exceeding thirty days where sufficient cause is shown. The appellate court may direct release of the deposited amount to the complainant during the appeal. If the appellant is acquitted, the statute provides for repayment by the complainant with interest at the RBI bank rate as published at the beginning of the relevant financial year, within the statutory repayment period subject to the permitted extension.
Sanjabij Tari revisited the earlier Damodar S. Prabhu scale and prescribed stage-wise compounding guidance: if the cheque amount is paid before defence evidence is recorded, the Trial Court may allow compounding without additional cost; after defence evidence but before judgment, the indicated cost is five per cent of the cheque amount; before the Sessions Court or High Court in appeal or revision, seven-and-a-half per cent; and before the Supreme Court, ten per cent. These are judicial compounding guidelines rather than a statutory tariff. Their application remains subject to the facts, the law of compounding and later binding precedent; the Supreme Court’s order in Rajeev Khandelwal v. State of Maharashtra dated 4 November 2025 also cautions against treating Article 142 cost directions as mechanically binding in every case.
Yes. Sanjabij Tari directs district courts to facilitate early settlement through dedicated online payment facilities and requires the summons to indicate that the accused may pay the cheque amount at the initial stage. Payment by itself, however, does not automatically amount to compounding. Section 147 compounding ordinarily requires the complainant’s consent, as reaffirmed in A.S. Pharma Pvt. Ltd. v. Nayati Medical Pvt. Ltd. (2024 INSC 690). On confirmed payment, the court may pass appropriate orders concerning release of money and, where legally permissible, compounding, closure or other disposal in accordance with law.
F. Parallel Remedies, Insolvency, Death and Quashing
Yes. A civil claim for recovery and a Section 138 prosecution are distinct remedies arising from the same underlying transaction and can ordinarily proceed in parallel. Depending on the documents, the civil claim may qualify for an Order 37 summary suit or another recovery route. Any payment, settlement or recovery in one proceeding must be disclosed so that the same liability is not recovered twice.
The Insolvency and Bankruptcy Code can materially affect the prosecution. In P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., the Supreme Court held that the Section 14 IBC moratorium applies to Section 138/141 proceedings against the corporate debtor during the moratorium period. The moratorium does not by itself protect natural persons such as directors or other persons who may be statutorily liable under Section 141. The NCLT admission order and insolvency stage should therefore be checked immediately.
The criminal prosecution against that accused cannot continue merely against the legal heirs because criminal liability is personal. Any separate civil claim against the deceased’s estate, or enforcement consequence arising from an already crystallised monetary order, requires independent legal analysis. Legal heirs do not become criminally liable merely because they inherit property.
The High Court’s inherent power under Section 528 BNSS is exceptional. Quashing may be appropriate where the complaint and admitted material, even taken at face value, do not disclose the statutory ingredients, where jurisdictional or vicarious-liability requirements plainly fail, or where there is another clear legal bar. Disputed questions such as whether a debt existed, whether a defence is probable or whether evidence is credible ordinarily belong to trial rather than a mini-trial at the quashing stage.
G. Practical Filing, Defence and Case Management
The file should ordinarily contain the original cheque; bank return memo; statutory demand notice; postal or courier receipt and tracking or delivery record; correct drawer and accused addresses; bank statement showing presentation where relevant; the underlying loan, invoice, contract, ledger, acknowledgment or payment material; entity and authorisation documents; a date-wise statutory timeline; jurisdiction material under Section 142(2); and verified email, mobile and messaging particulars for service where available. After Sanjabij Tari, the complaint should also carry the prescribed-style synopsis immediately after the index.
Do not ignore the summons. Preserve the bank account record, cheque-book history, stop-payment or closure instructions, payment receipts, reply notice, loan or security documents, electronic communications, alteration or misuse material, company-role records and evidence concerning the underlying liability. Identify the specific defence early—such as payment, absence of debt, security purpose, misuse, limitation, lack of responsibility under Section 141 or another factual defence—and avoid relying on a bare denial after the statutory presumptions have arisen.
The complaint should include, immediately after the index, a synopsis identifying the parties, cheque number and amount, drawee bank, presentation and dishonour details, statutory-notice particulars and service status, cause-of-action date, jurisdiction under Section 142(2), other pending Section 138 cases between the parties, the relief sought and whether interim compensation under Section 143A is requested. Available accused contact particulars for electronic service should be verified by affidavit rather than inserted casually.
Section 138 gives the complainant substantial procedural leverage, including statutory presumptions and settlement mechanisms, but it is not an automatic debt-collection result. Strict timelines, valid notice, proof of an enforceable liability, proper parties, service, defence quality, court procedure, appeal, insolvency and the debtor’s actual payment capacity can all affect the outcome. Both prosecution and defence should therefore be managed through a date-controlled document file rather than informal recollection.
Related Information
If you have a live matter, a document requiring review, or a notice or order you have received on this subject, you may send a preliminary enquiry.
Subject to conflict check, scope confirmation, professional terms and express acceptance by the responsible Advocate.
Last reviewed: 13 September 2026