This article is written by Yagni Sarvankar of University of Mumbai Law Academy and curated by Anjeeta Rani of Chanakya National Law University.

A cheque is a document which orders a bank to pay a specific amount of money from one person’s account to another person’s account. Here, the first person who issued the cheque to another is known as the Drawer and on the other hand, the one who receives/accepts the cheque is known as the Drawee. It’s a non-cash transaction. According, to The National Provincial Bank circa 1968, ‘an unconditional order in writing drawn on a Banker, signed by the drawer, instructing the Banker to pay on demand a sum certain in money to or to the order of a specified person or to Bearer and which does not order any act to be done in addition to the payment of money.’ 

A cheque being bounced is one of the most common financial offences that can land the issuer of the cheque into trouble. A cheque gets bounced only if the issuer writes a bad cheque i.e., due to mismatch of signature, or overwriting, or post-dated, or stale cheque, or frozen account, or stop payment instructions given to the bank or insufficient funds in the account. The cheque is then returned as unpaid or dishonored. 

After the cheque is dishonored, the drawee bank issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The payee’s banker then gives the dishonored cheque and the memo to the payee. The holder or payee can resubmit the cheque within three months of the date on it if he believes it will be honored the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally. The payee may legally sue the defaulter/drawer for dishonor of the cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards the payee. If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases. 

According to Section 138 of Negotiable Instrumental Act, 1881, there are three negotiable instruments namely promissory notes, bills of exchange and cheques. The word ‘negotiable’ means transferable for consideration and ‘instrument’ means a written document which creates a right in a favor of a person. Thus, a negotiable instrument means a document (sum of money) transferable by delivery. There are mainly six offences under Section 138. Following are the ingredients needed to constitute an offence under this Act:  

  1. a cheque must have been drawn on an account maintained in a bank for payment of a certain amount of money to another person from that account
  2. the cheque should have been issued for the discharge, in whole or in part, of any debt or other liability;
  3. that cheque has been presented to the bank within three months from the date on which it is drawn or within the period of its validity whichever is earlier; 
  4. that cheque is returned by the bank unpaid, either because of the amount of money standing to the credit of the account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
  5. the payee or the holder makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information from the bank regarding the return of the cheque as unpaid;
  6. the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;

On receipt of a legal notice or summons, the defaulter can settle the payment amicably out of the court at any time or proceed with a lawyer for the hearing, at the court where the complaint has been registered.

Explanation of the given section: For this section, debt or other liability means a legally enforceable debt or other liability. Dayawati v. Yogesh Kumar Gosain.

The issues need to be examined from the point of view of the Criminal Procedure Code (Cr.P.C), 1973. Section 177 Cr.P.C, 1973 provides that every offence shall be tried by the court within whose jurisdiction it was committed. In Harman Electronics (P) Ltd. V. National Panasonic India (P) Ltd., it was held that offence under Section. 138 of Negotiable Instruments, 1881 is governed by Section 177 of Cr.P.C, 1973 with respect to territorial jurisdiction.

The Supreme Court in N. Harihara Krishnan v. J. Thomas held that the offence under Section 138 is person-specific. The general concept under Cr.P.C, 1973 is that cognizance was taken against the offence and the offender was not appropriate in prosecution under Negotiable Instruments Act, 1881. The first ingredient which constitutes the offence is the fact that a person drew a cheque. Here, the identity of the drawer of the cheque should be known to the complainant i.e., payee, to start the trial. There will be a dispute only if the person alleged to have drawn the cheque denies the very fact, but other than that, the other facts are required to be proved for punishing the alleged drawer of the cheque, but for that also the payee shall follow steps given under Section 138.  

According to the Negotiable Instruments (Amendment) Act, 2018, the drawer of the cheque has to pay interim compensation to the complainant in summary trials or a summons case where he pleads not guilty to the accusations in the complaint. Furthermore, the interim compensation shall not exceed 20% of the amount of money of the cheque and shall be payable within 60 days from the date of the order. The Amendment also empowers the Appellate Court, hearing appeals against conviction under Section. 138, to direct the appellant to deposit a minimum of 20% of the fine or compensation awarded, in addition to the interim compensation.

There are further various consequences of a cheque being bounced which can affect the cheque drawer:

Penalty from the bank: If the cheque gets bounced due to insufficient funds in the bank account or there has been any irregularity in the signatures or due to some other technical issue as mentioned earlier, the drawer (accused) and the drawee (complainant) are imposed with penalties by their respective banks.

Negative Influence on the CIBIL score: CIBIL score or Credit Information Bureau Limited score is a 3-digit number, fluctuating between 300 to 900 which is used by banks and Non-Banking Financial Companies (NBFCs) to determine a person’s credit suitability and the chances of repayment of the loan amount of money on time by that person. The tag of a cheque bounce can be damaging towards the CIBIL score of accused and he may not be allowed loan ever again by any financial institution. So, to maintain the CIBIL score, every person must avoid the cheques being dishonored and maintain more than the minimum balance required in the bank account, even after the cheque has been converted into money.

Further, as per the RBI guidelines, banks can stop issuing cheque book facilities to the ones whose cheques valued at Rs. 1 crore has bounced repeatedly at least four times. 

Offences under Section 138 of the Act is primarily a Civil wrong wherein the burden of proof is on the accused in view of Section 139 but the standard of such proof is the preponderance of probabilities. The same has to be normally tried summarily as given under Cr.P.C. A drawee can file a Civil or Criminal action against the drawer, as a cheque being dishonored in all probabilities can result in both Civil and Criminal lawsuit against the Drawer if the payee or drawee does not receive the payment promised. 

If the cheque dishonored is willful, then the defaulter can be prosecuted under Section 138 of Negotiable Instruments Act, 1881 or Section 417 and 420 of Indian Penal Code (IPC) 1960. Under Section 138, the payee/holder must send a legal notice first, then if the drawer is found guilty as a willful defaulter, he can be punished with a prison term of two years and fine as high as twice the cheque amount. Under Section 417 and 420, a non-bailable warrant can be issued. However, in both cases, a case of cheating has to be proven and legal support can be taken only it has been proven. If more than one cheque is bounced, the payee can file separate suits against each dishonored cheque, which can compound issues for the defaulter. 


Section 138 of the Negotiable Instruments Act, 1881 protects the payee from any illegal act on the part of the drawer. As cheques are commonly used instruments in the business world, the banking sector needs to be protected. It has been seen that there have been many changes in the law in the past few years, regarding dishonor of cheques, especially the jurisdiction. Also, the law promises to aid in the speedy trial in such cases and also bring sanctity to the system by reducing the default of payments.