Cheque Bounce Case Lawyers – Legality, Process, Defence, Bail & Punishment

Cheque bounced: What to do and what not to do.

As you may know the cases of 138 cheque bounce matters are very common these days in Bangalore and Chennai due to the large spike in the e-commerce and e-business sectors. Rightly so, the parliament has amended the Negotiable Instruments Act and classified the act of dishonour of cheque as a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.

The primary object of the amendment to Negotiable Instruments Act:

To regulate the growing business, trade, commerce and Industrial activities.
To promote greater vigilance in financial matters.
To safeguard the faith of creditors in drawer of cheque.

Why a criminal overtone over a civil wrong?

As cheque is a negotiable instrument, the economic progress of a country depends upon its sanctity and reliability. Imagine if the cheque is not relied upon, then there would be lack of trust among vendors, partners, suppliers, customers and businesses. Ultimately resulting in slow and staggered economic growth.

Cheque is a proof of payment. And any misuse or abuse warrant for strict action, rightly so. And here are some reasons why a cheque bounce or dishonoured.

Insufficient funds in the bank account.
Expired validity of the cheque
Issuing of a Stop Payment
Damaged Cheque
Signature Mismatch
Mismatch of amount or digits

But the real question is:

What to do if your cheque is dishonoured.

Easy answer is to take immediate legal help and consult the Best Cheque Bounce Cases Lawyer in Bangalore. Long answer, have proper legal agreements between the parties and set up business processes in place to avoid facing such scenario in the future.

In this guide, I’ll explain the legal procedure and strategies for both the victim and the accused.

The laws on cheque bounce cases.

The Indian laws have provided enough safeguards to take appropriate legal action if the cheque is bounced. You can initiate both civil and criminal proceedings against the issuer.

The Power of Section 138 of the Negotiable Instruments Act.

Seek damages in the civil proceedings, or penalty/arrest by filing a private complaint before the Magistrate.

Section 138 in The Negotiable Instruments Act, 1881

18 [ 138 Dishonour of cheque for insufficiency, etc., of funds in the account. —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 from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for 19 [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless—

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, 20 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.— For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.]

In the case of Kaushalya Devi Massand v. Roopkishore Khore (2011), it is held that Sec. 138 of NI Act is different and cannot be equated with IPC or other criminal offences.

Applicability of Section 138 of N.I Act by Judicial Pronouncements

Insufficient funds
Exceeds arrangements- funds are sufficient but, the amount mentioned in the
cheque exceeds the arrangement made with the bank.
Payment stopped by drawer – Som Nath Versus State of Punjab and another
2008(1) RCR(Criminal) 273 (P&H).
Account already closed. Jitender Poddar Versus Prem Nath Sharma 1994(3)
RCR(Criminal) 353(P&H), Jaspal Singh Bedi Versus State of Punjab 2005(1)
RCR(Criminal) 78m (P&H).
No such account. Sandeep Mehra alias Babi Versus Chander Parkash Madan 2015
ACD 166 (P&H).
Stop payment. M/s Gupta Rice and General Mills Versus M/s. Meerut Agro Mills
Ltd. And another 2011(3) Law Herald 2690.
Signature differ. Charanjit Singh Chawla Versus State of Punjab 2009(2) RCR
(Criminal) 690 (P&H).
Refer to drawer. M/s Lily Hire Purchase Pvt. Ltd vs Darshan Lal 1997(1)RCR Cr
580
Not arranged for. VK Bansal vs State of Haryana 2011(1) Law Herald 396
Account not in the name of accused- Section 138 not made out- A person must
have drawn cheque on account maintained by him – Jugesh Sehgal Versus Shamsher
Singh Gogi 2009(3) RCR(Criminal) 712 (SC).

Learn more about the recent trends in 138 Negotiable Instrument Act.

When the cause of action starts for the cheque bounce.

First, the payee presents the cheque within the validity (6 months) of the cheque. Then, the bank has to reject the cheque with a return memo “Due to insufficient funds“. Next, the payee sends a legal notice (registered post with acknowledgement) demanding for the full payment of the cheque amount within the stipulated time.

Now you have total 45 days (30 days from the date of cheque bounce + the mandatory 15 days expiry of the notice period) to file a private complaint against the accused under Section 138 N.I. Act. In other words, time is of essence.

First Information Report (FIR) for cheating (S.420 IPC).

Approach the local jurisdictional police and submit all the relevant proofs of the case if you have been cheated by the unscrupulous persons and request the police authorities to register an FIR against the accused persons.

Bailable or non-bailable offence?

Bailable offence is a matter of right.

Non-bailable offence means that a police cannot release an accused for certain ‘non-bailable’ offences on bail, but only the Court has the power to release the accused on bail, irrespective of whether it is bailable or non-bailable.

Cheque bounce is a non-cognizable offence and hence, the police does not directly involve with the case since they do not have any jurisdictions. Upon filing the private complaint, the Court issues a summon to the accused to be available during the proceedings.

When police can arrest?

First, the court will issue a bailable warrant in the cheque bounce case.

If the accused is still failed to appear despite serving of summons, then the Non-Bailable Warrants (NBWs) will be issued and the police is directed to arrest the accused and present them before the court.

If NBW is issued against you, then you’ll need to file an application for cancellation of NBW before the Hon’ble Court.

Other legal recourses in Cheque Bounce cases

File a cheating case Indian Penal Code (IPC).

You can file a cheque bounce under both S. 420 of IPC (dheating) as well as under Section 138 of NI Act (dishonour of cheque).

The Hon’ble Karnataka High Court has ruled that proceedings under Section 420 of the Indian Penal Code are maintainable even if a complaint under Section 138 of the Negotiable Instruments Act has been filed.

Cheque bounce: Filing procedure, process and fees.

Presumption of liability or debt.

Section 139 of NI Act provides that it shall be presumed that the holder of a cheque received the cheque of the nature referred to in Section 138 of NI Act for the discharge, in whole or in part, of any debt or other liability.

Five Golden Rules in Cheque Bounce Cases

In the case of Bhaskaran v. Sarkaran Vaidhyan Balan ((1999) 7 SCC 510), the following five acts are a sine-qua-non for the completion of an offence under Section 138 of NI Act.

Drawing of the cheque
Presentation of the cheque to the bank,
Returning the cheque unpaid by the drawee bank,
Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount,
Failure of the drawer to make payment within 15 days of the receipt of the notice.

Cheque Rule Change: Pay Extra If you don’t Follow New Rule.

The new set of rules, which took effect on August 1, 2021, states that customers who plan to issue cheques need to ensure that there are sufficient funds in the bank accounts to do so. If this minimum balance is not maintained, the cheque will bounce.

Stages of Cheque Bounce Case of N.I Act:

Mandatory Demand Notice
Filing complaint u/s 138 of N.I Act
Sworn Statement of Complainant
Appearance of Accused
Recording of Plea
Examination in Chief
Cross Examination
Defence Evidence
Arguments
Judgment

Documents required to file/defend a 138 cheque bounce cases.

For Complainants:

Any agreement/contract between complainant & accused including order(s) placed (if any)
Invoice / Bill against which dishonoured cheque was issued
Any other document that is evidence of the creation of debt or liability
Correspondence Exchanges between the parties.
Original Dishonoured Cheque
Bank Memo stating the reason for dishonour of cheque
Copy of the legal notice sent to the accused
Proof of dispatch of the above legal notice (RPAD cover, receipt)
Postal Acknowledgment received from the accused

For Accused:

Communication exchanged between the parties
Documents evidencing that the accused has no liability.
Reply to Demand Notice.

Court fees.

Amount less than Rs.10,000 – court fee of Rs. 200/- is payable.

Bail provisions in Cheque Bounce Cases (S.138 NI Act)

Bail is a temporary release of an accused person awaiting trial, on surety bond. There are three types of bail prevailing in India which are:-

Regular Bail (u/s 437 & 438 of CrPC): Granted to a person who has been arrested or is in police custody.
Interim bail: Granted for a short period of time, usually before the hearing for the grant of regular bail or anticipatory bail.
Anticipatory bail (Pre-arrest bail): Granted under section 438 of the Cr.PC either by Sessions Court or by High Court.

Bank Charges, Penalties, and Compensations (Negotiable Instruments (Amendment) Act 1881)

Interim Compensation u/s 148 of N.I. (Amendment) ACT 2018.

The parliament passed the Negotiable Instruments (Amendment) Act which inserted/introduced Section- 148 where in case of an Appeal filed by the accused against the conviction under section 138, the Appellate Court may order the Appellant to deposit a minimum of twenty percent of the fine or the total compensation awarded by the trial Court.

The Court trying an offence under section 138 may order the drawer of the cheque to pay interim compensation to the complainant, not exceeding 20% of the amount of the cheque.

Dispute Resolution and Settlement in cheque bounce cases

Scope of Mediation in Cheque Bounce cases.

If you find that you are able to make the payment, initiate a mediation and dialogue with the opposing side and try to settle the case. If both the parties agree on the terms of payment, then draft a MOU and submit before the court for the settlement. Then, the complainant can file an application to withdraw the case if the dispute is settled.

In the case of Mayawati v. Yogesh Kumar Gosain (2017), the Hon’ble Delhi High Court provided a new approach to deal with the cheque bounce cases u/s 138 of NT Act by way of Alternate Dispute Resolution (ADR) mechanism as the offences are criminally compoundable by nature.

Defence strategies in cheque bounce cases.

File a counter case.

If you’ve been wrongly subjected to a false cheque bounce case, then file a counter case. Talk to your lawyer for specific legal advice and assistance to prove your innocence in the false case.

It is important to understand that the complainant has to prove ‘legally enforceable debt’, while the accused can prove that the cheque was given merely as a security deposit. If the accused is successful in proving the same, then they have better chances of acquittal.

Send a reply to legal notice u/s 138 N.I.Act

If you’ve received a cheque bounce lawyer notice regarding a cheque bounce case, and if you believe the same thing to be false and with a malafide intention, then take the help from a lawyer to draft a reply to the original notice by countering each and every relevant point.

You cannot underestimate the power of reply notice in a S.138 case. It’s a golden opportunity to deny and refute all the allegations made by the opposite party. And demand them to withdraw the notice which has no basis under Section 138 of Negotiable Instruments Act.

Cross-Examination Questions in 138 Cheque Bounce Matter

What is your job/salary/qualifications (complainant’s background)
What was the mode of payment of loan?
If cash, can you (complainant) show the withdrawal from the bank?
What is the source of the funds?
Have you filed ITR for the financial years [x]?
Have you filed a balance sheet along with the ITR?
Is this amount reflecting in the balance sheet?
Have you subjected the balance sheet to the audit?

Do you want to talk to an expert lawyer to defend a false cheque bounce case?

Punishment & penalty for Cheque Bounce Cases

A criminal offence.

According to Section 138 of the Act, the dishonour of cheque is punishable by imprisonment up to two years or with monetary penalty or with both. After the amendment of 2002 the imprisonment that may be imposed may extend to two years, while fine may extend to twice the amount of cheque.

If the cheque bounce case is a summary trial, then the Magistrate can pass a sentence of imprisonment not exceeding one year and amount of fine exceeding Rs. 5,000.

Cheque Bounce Lawyers fee

There’s no fixed fee on the cheque bounce case. A lawyer may charge based on their experience, complexity, facts and circumstances of the case.

Sample Documents: Cheque Bounce Legal Notice & Complaint Formats

Sample Cheque Bounce Complaint #1

IN THE HON’BLE COURT OF _______ AT BENGALURU

P.C.R No. /2022

BETWEEN:

Mr. X COMPLAINANT

AND:

M/s. Y ACCUSED

MEMORANDUM OF CRIMINAL COMPLAINT UNDER SECTION 200 OF CODE OF CRIMINAL PROCEDURE, 1973 FOR THE OFFENCE UNDER SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT

The complainant above named humbly submits and states as follows:

The address of the complainant for service of court notice, process etc., is correctly furnished in the cause title above.
The address of the accused for service of notice, summons etc., from this Hon’ble Court is as stated in the cause title above.
That the Complainant is working as [X] and is residing at [X].
That the present complaint is being field by the complainant Mr. [X] to cause appearance in this Hon’ble Court and to depose and conduct the proceedings.
That on [X] the accused namely Mr. [X]had approached the complainant personally and asked for a friendly loan of Rs. [X].
That on [X] complainant paid Rs. [X] (Rupees [X] as friendly loan repayable on demand.
That towards payment of amount of loan the accused issued Cheque No. [X] Dated [X] for Rs. [X] to the complainant. That in order to discharge their above said liability and in accordance with the agreed terms and conditions, the accused had issued Cheque No. [X] Dated [X] for Rs. [X]/- drawn on [X]. The said cheque was issued from Account No. [X] is held in the name of the accused. That the present complaint is based on the dishonor of the above said cheque which was issued in discharge of a lawful debt. The copy of the said Cheques are herewith produced at DOCUMENT NOs.[X].
That at the time of handing over the above said cheque the accused had assured the complainant that the said cheque will be honored/encashed on presentation. Taking the above assurance/representation as true, the complainant had accepted the above said cheque.
That on the basis of the assurances given by the accused, the complainant presented the above said cheque with its bankers namely [X] and was dishonored vide cheque return advice dated [X] issued by the complainants bank. The aforesaid cheque was returned unpaid vide returning memo dated [X] the remarks “FUNDS INSUFFICIENT“. Copy of the Banker’s Memo is herewith produced at DOCUMENT NOs.[X].
That the dishonor of the cheque clearly shows and establishes that the accused did not intend to honor the amount under the said cheque.
That the accused have failed to make payment against the said cheque which has been done by them malafidely, intentionally and deliberately and knowingly. That at the time of issuing the said cheques the accused were fully aware that the said cheques will not be honored on presentation.
Therefore, the accused has dishonestly induced the complainant to advance a sum of [X]/- (Rupees [X] Only) fully knowing that he cannot repay the said amount to the complainant.
The Complainant issued mandatory notice on [X] by RPAD. Copy of the legal notice and the postal receipt issued by the Postal Department is herewith produced at DOCUMENT NO.[X].
The notice was served on the accused on [X] as per the postal consignment tracking. Copy of the postal consignment tracking is herewith produced at DOCUMENT NO.[X].
The accused despite receipt of the notice failed to pay the money covered by the cheque within a period of 15 days from the date of receipt of notice. Thus, the cause of action for the complaint arose on [X] and the Complaint is presented on this day.
The complainant has complied with the provisions of Section 138(a) to (c) of the Negotiable Instruments Act.
The accused has committed the above offence, within the jurisdiction of this Hon’ble court.

PRAYER

WHEREFORE, the Complainant above named most humbly prays that this Hon’ble Court be pleased to take cognizance of the offence punishable under Section 138 of N.I. Act, issue process and punish the accused sentencing double the cheque amount, in the ends of law and justice.

ADVOCATE FOR COMPLAINANT

Place:

Dated:

Common questions on Cheque Bounce Cases

Can I stop a cheque?

You must have genuine reasons (your bank account was hacked or the cheque was stolen or given as a security) for issuing any “stop cheque payment” instruction to the bank. If the court finds the reason not satisfactory or genuine, then you may be punished for attempting to escape from the legally enforceable debt.

The keyword here is ‘legally enforceable debt‘.

If no liability, then you may use a defence that the cheque was given as a security and that the complainant used it fraudulently.

What is Defence evidence?

To disprove the complainant theory, the accused needs to produce relevant documents as evidence including written statement, affidavit.

Landmark Judgements on Cheque Bounce Cases

Case #1: Canara Bank vs Canara Sales Corporation & Ors: The Hon’ble Apex Court held that there was negligence on the part of both the creditor (bank) as well as the debtor (company). However, since the bank’s negligence was higher, the company is eligible for compensation.

Case #2: Dalmia Cement Ltd. V. Galaxy Traders & Agencies Ltd: The Hon’ble Apex Court observed that the intention of the legislative when enacting section 138 was to provide a strict liability for negotiable instrument such as cheque.

Case #3: Smt. Asha Baldwa v. Ram Gopal: Another landmark judgments in Section 138 regarding a quash the proceedings under Section 482 of CrPC on the ground that the provision under Section 141(2) of the Negotiable Instruments Act, 1881, the allegations can be made only against the Company or its Partners or Directors when the offence was committed with their consent or neglect. However, the Court held that since the petitioner admitted of giving the cheque, she is responsible for the consequences.

Case #4: Kishan Rao v. Shankargouda: The Supreme Court has reiterated on the scope of revisional jurisdiction i.e., the High Court is not to interfere with any of the Magistrate’s order unless it seems to be completely unreasonable or there is no consideration of relevant material.

Case #5: M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta: A two bench of Supreme Court issued directions for speedy trial of cases (using modern technology/video conferencing/paperless trial) under Section 138 of the N.I. Act and also clarified regarding dishonour of cheque.

Case #6: Geekay Exim (India) Ltd. v. State of Gujarat (1998): The High Court of Gujarat clarified that while adjudicating, the question of applicability of mens rea or not shall depend on the facts and circumstances of each case.

Case #7: M.M.T.C. Ltd. and Anr. Vs Medchl Chemicals and Pharma (P) Ltd. and Anr. ( AIR 2002 SC182): The Apex Court held that the burden of proof lies on the accused to show that he had issued an instruction to stop the payment because of valid reasons.

Case #8: Dashrath Rupsingh Rathore v. State of Maharashtra: The Supreme Court changed ground rule under Section 138 of Negotiable Instruments Act to prosecute a person who had presented the cheque which bounced due to ‘insufficiency of funds’.

Case #9: Subramani v. K. Damodara Naidu (2015 1 SCC 99): The Hon’ble Apex court held that the complainant has a duty to establish his financial capacity to lend money. If it is proved that the Complainant has no source of income to lend the amount to the accused, then the accused is entitled to acquittal.

Cheque Bounce Case: Legal terms

Drawer: The author of the cheque is called ‘drawer’.

Payee: The person in whose favour, the cheque is drawn is called ‘payee’.

Drawee: The bank who is directed to pay the amount is known as ‘drawee’.

Return Memo: The bank sends a memo returning the cheque along with an instruction such as “Insufficiency of Funds”.

Payee’s Bank: The Bank where the Payee has a bank account in which the cheque amount shall be deposited/credited.

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Cheque Bounce Lawyer – Legal Procedure, Demand Notice, Bail Laws