Latest Supreme Court Judgement On Cheque Bounce Case​

In today’s fast-paced digital world, cheques might seem like a fading payment mode, but in India, they remain deeply trusted, especially for significant business transactions and personal loans. However, this long-standing trust in cheques often results in legal disputes, particularly when payments fail. Cheque bounce cases have become one of the biggest contributors to case pendency in Indian courts.

Official Data:
According to the Ministry of Law and Justice, in a written reply to the Lok Sabha on 20th December 2024, a staggering 43,05,932 cheque bounce cases were pending across the country as of 20th December 2024.
Source: QUESTION NO. 4190: PENDING CHEQUE BOUNCE CASES

This alarming figure highlights not just a burdened judiciary but also the urgent need for legal clarity and reform. The scale of pending cases directly affects public trust in cheque-based payments, and demands sharper judicial interpretation, which the Supreme Court is now addressing through its evolving stance on Section 138 of the Negotiable Instruments Act.

This blog unpacks these landmark rulings, guiding you through the evolving legal landscape with empathy for all involved.

This blog covers, in order:

• What cheque bounce case mean under Section 138?
• Grounds for dishonour of a cheque
• Essential legal principles courts consider in such cases
• Latest Supreme Court judgments (2022–2025) shaping the law

What Is Cheque Bounce?

A cheque bounce occurs when a cheque presented to the bank for payment is returned unpaid. This is also called the dishonour of a cheque, and it can happen for several reasons, most commonly due to insufficient funds in the account.

To understand this better, let’s first look at the key terms in a cheque transaction:

• Drawer: The person who writes and signs the cheque, instructing their bank to pay a specific amount.
• Payee: The person or entity in whose name the cheque is issued, the one who is supposed to receive the money.
• Drawee: The bank on which the cheque is drawn (i.e. the drawer’s bank).

How the Cheque Clearing Process Works?

1. Deposit: The payee deposits the cheque in their own bank account.
2. Clearing: The payee’s bank (collecting bank) sends the cheque to the drawer’s bank (drawee bank) via the clearinghouse.
3. Verification: The drawee bank checks for sufficient funds and validates the cheque details.
4. Honour or Dishonour:
5. • If valid, funds are transferred to the payee’s account.
   • If not, the cheque is returned unpaid to the payee’s bank with a return memo stating the reason.
5. Notification: The payee’s bank informs the payee of the dishonour and provides the return memo, essential for any legal action.

Common Grounds For Dishonour Of Cheques

While insufficient funds are the most frequent cause, banks may dishonour cheques for several reasons that are recognised under law:

• Insufficient Funds: The account does not have enough balance to cover the cheque amount, triggering Section 138.
• Account Closed: The drawer closed the account before the cheque was presented.
• Signature Mismatch: The drawer’s signature does not match the bank’s records.
• Stop Payment by Drawer: If a stop-payment instruction is given despite a valid liability, it may still attract criminal action.
• Exceeds Arrangement: The cheque amount is beyond any agreed overdraft limit or credit arrangement.
• Altered or Tampered Cheque: Any unauthorised change to the amount, date, or payee name leads to dishonour.
• Post-dated or Stale Cheque: A post-dated cheque presented prematurely or a cheque presented after 3 months from its date (stale) is considered invalid.
• Frozen or Garnisheed Account: Legal orders or garnishee proceedings prevent the bank from honouring the cheque.

Note: While some cases may be resolved privately or carry civil consequences, the Negotiable Instruments Act, 1881, applies when the cheque was issued against a legally enforceable debt or liability, making it a criminal offence.

Section 138 of the Negotiable Instruments Act, 1881

Section 138 criminalises cheque bounce when certain legal conditions are met. For a successful prosecution, all the following elements must be satisfied:

1. Cheque Issued for a Legally Enforceable Debt or Liability: The cheque must be issued to discharge a debt, not as a gift or security.
2. Presented Within Validity Period: The cheque must be presented to the bank within 3 months of its date (or within its stated validity).
3. Cheque Dishonoured by Bank: The bank returns the cheque unpaid due to insufficient funds, account closure, stop payment, etc.
4. Written Legal Notice to Drawer: The payee must send a written demand notice within 30 days of receiving the bank's dishonour memo.
5. 15-Day Payment Window: After receiving the notice, the drawer has 15 days to clear the cheque amount and avoid legal action.
6. Complaint Filed Within Time: If the drawer fails to pay, the complainant must file a complaint in court within 1 month after the 15-day period lapses.

Punishment for Cheque Bounce (Section 138)

If found guilty under Section 138, the drawer may face:

• Imprisonment of up to 2 years, or
• Fine up to twice the cheque amount, or
• Both imprisonment and a fine

Note: Courts also allow the offence to be compounded, meaning the drawer and the complainant can settle the matter amicably outside court, with the complainant’s consent.

Related Legal Provisions

The Negotiable Instruments Act, 1881, lays down specific legal presumptions and procedural powers to ensure effective enforcement of cheque bounce cases. These provisions play a crucial role during both the trial and appeal stages.

Burden of Proof and Presumptions

• Section 139 presumes that the cheque was issued for a legally enforceable debt or liability, unless the drawer proves otherwise. This is a rebuttable presumption in favour of the payee.
• Section 118(a) presumes that the cheque was issued for consideration, placing the initial burden of proof on the drawer to prove otherwise.

Rebuttal Standard: The drawer (accused) can rebut these presumptions through oral or documentary evidence. They are only required to prove their defence on a preponderance of probabilities, not beyond a reasonable doubt.

Procedural Provisions Supporting Enforcement

• Section 143 empowers the court to direct the drawer to pay interim compensation, up to 20% of the cheque amount, during the pendency of the trial.
• Section 148 allows appellate courts to order the drawer to deposit a minimum of 20% of the cheque amount before hearing an appeal against conviction.

These provisions ensure a balance between the payee’s right to recover dues and the drawer’s right to a fair defence.

Latest Court Judgments

Over the years, the Supreme Court has delivered several landmark rulings that have shaped the interpretation and application of Section 138 of the NI Act. These judgments have clarified crucial aspects such as the presumption of liability, the evidentiary burden on the accused, the nature of security cheques, and procedural compliance, providing much-needed guidance to lower courts and litigants alike.

1. Vishnoo Mittal v. M/s Shakti Trading Company on 17 March 2025

Parties: Vishnoo Mittal (former director, M/s Xalta Food and Beverages Pvt. Ltd.) (Appellant) v. M/s Shakti Trading Company (Respondent)

Facts:

• M/s Xalta Food and Beverages Pvt. Ltd. (corporate debtor) appointed the respondent as its super stockist and issued eleven cheques totalling approximately ₹11,17,326 in the course of business.
• These cheques were dishonoured on 07.07.2018.
• On 25.07.2018, insolvency proceedings were initiated against the corporate debtor, and a moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) was imposed.
• A demand notice under Section 138 of the NI Act was issued to the appellant on 06.08.2018.
• Upon non-payment, the respondent filed a complaint under Section 138 NI Act in September 2018 against the appellant (as ex-director).
• The appellant sought quashing of the proceedings, arguing that since the moratorium was already in force, prosecution could not be sustained.
• The High Court dismissed the appellant’s petition, relying on the precedent set in P. Mohan Raj v. Shah Brothers Ispat Pvt. Ltd.

Issue: Whether a Section 138 NI Act case can proceed against a former director when the cause of action arises after a moratorium under Section 14 of the IBC is imposed.

Judgment: The Supreme Court in the case of Vishnoo Mittal v. M/s Shakti Trading Company quashed the cheque dishonour proceedings against Vishnoo Mittal. It held that under clause (c) of the proviso to Section 138 NI Act, the offence is complete only after the expiry of 15 days from the receipt of the demand notice and non-payment.

Since the moratorium was already in place before the cause of action (expiry of notice period), proceedings under Section 138 could not be sustained against the former director. The Court distinguished this case from P. Mohan Raj, where the cause of action arose before the moratorium.

The Court emphasised that continuing the case would be an abuse of process and that courts should exercise their powers under Section 482 CrPC to prevent undue harassment.

Impact: This judgment clarifies that if a moratorium under IBC is imposed before the cause of action for a cheque bounce offence arises, prosecution under Section 138 NI Act cannot proceed against the former directors of the corporate debtor.

It prevents parallel proceedings and overlap between insolvency and cheque bounce litigation, offering protection to directors in such scenarios.

2. Avneet Singh v. Ravinder Kumar on 18 March 2025

Parties: Avneet Singh (Appellant) v. Ravinder Kumar (Respondent)

Facts:

• Avneet Singh issued a cheque to Ravinder Kumar, which was later presented for payment and dishonoured by the bank due to insufficient funds.
• Ravinder Kumar sent a statutory demand notice to Avneet Singh, but the payment was not made within the stipulated period.
• Avneet Singh, in his defence, claimed he had not filled in the cheque and alleged that it was misused or filled in by someone else without his authority.
• The trial court convicted Avneet Singh under Section 138 of the Negotiable Instruments Act, and the conviction was upheld by the appellate court.
• Avneet Singh challenged the conviction before the court, reiterating his defence that the cheque was not filled by him.

Issue: Can the drawer escape liability under Section 138 by claiming the cheque was not filled by them, and what is the evidentiary burden on the accused in such cases?

Judgment: The Court in this case of Avneet Singh vs Ravinder Kumar held that the presumption under Sections 118(a) and 139 of the NI Act strongly favours the holder of the cheque. The mere claim that the drawer did not fill out the cheque is insufficient to rebut the statutory presumption.

The accused must present credible evidence of fraud, fabrication, or misuse to successfully rebut the presumption. In this case, Avneet Singh failed to produce any convincing evidence to support his claim, and the conviction was upheld.

Impact: This judgment strengthens the legal position of cheque holders by affirming that the burden to rebut the presumption lies squarely on the accused. It clarifies that vague or unsupported allegations by the drawer are not enough to escape liability under Section 138.

3. Sri Sujies Benefit Funds Limited v. M. Jaganathan 2024

Parties: SRI SUJIES BENEFIT FUNDS LIMITED (Appellant) v. M. Jaganathuan (Respondent)

Facts:

• The appellant, a financial institution, advanced a loan to the respondent.
• The respondent issued a cheque in favour of the appellant to discharge the loan liability.
• When presented, the cheque was dishonoured due to insufficient funds.
• The appellant issued a statutory notice, but the respondent failed to pay the cheque amount within the stipulated period.
• The respondent argued that discrepancies in the interest rate and underlying transaction negated the presumption of a legally enforceable debt.
• The trial court acquitted the respondent, accepting his defence.
• The appellant challenged the acquittal, arguing that the presumption under Section 139 of the NI Act was not rebutted.

Issue: Does a discrepancy in the underlying transaction, such as the interest rate, negate the presumption of a legally enforceable debt under Section 138/139 of the NI Act?

Judgment: The Supreme Court in the case of Sri Sujies Benefit Funds Limited v. M. Jaganathan reversed the acquittal and held that minor discrepancies in the underlying transaction, such as the interest rate, do not by themselves rebut the statutory presumption of a legally enforceable debt.

The accused must present credible evidence to rebut the presumption; mere assertions or minor discrepancies are insufficient. The Court emphasised strict compliance with the statutory presumptions under the NI Act.

Impact: This judgment reiterates that the presumption in favour of the complainant is strong and can only be rebutted by substantial evidence. It clarifies that minor defects or disputes in the loan agreement do not absolve the drawer of liability under Section 138.

4. H M Prabhuswamy vs Srinivas on 20 January, 2025

Parties: H M Prabhuswamy (Appellant) v. Srinivas (Respondent)

Facts:

• H M Prabhuswamy lent ₹4,40,000 in cash to Srinivas in September 2019, to be repaid with interest.
• When Srinivas failed to repay, he issued a signed, post-dated cheque to Prabhuswamy towards repayment of the debt.
• Prabhuswamy presented the cheque, but it was dishonoured by the bank with the endorsement "Bank blocked by RBI."
• After receiving a statutory notice from Prabhuswamy, Srinivas failed to pay the cheque amount within the prescribed period and did not give a satisfactory reply.
• Srinivas admitted signing the cheque but claimed it was given as a blank security cheque for a chit fund, not for loan repayment, and alleged misuse by Prabhuswamy.
• Srinivas did not provide credible evidence to support his defence.
• The trial court convicted Srinivas under Section 138 of the Negotiable Instruments Act, and the conviction was upheld on appeal.

Issue: Can a complainant lawfully fill in a signed blank cheque to recover a legally enforceable debt, and what must the accused prove to rebut liability?

Judgment: The Court in the case of H M Prabhuswamy vs Srinivas held that if a signed cheque is issued towards a legally enforceable debt, the complainant can fill in the details. The presumption under Sections 118(a) and 139 of the NI Act favours the holder; the burden is on the accused to prove misuse or lack of authority. Srinivas failed to provide credible evidence of misuse, so the conviction was upheld.

Impact: This judgment clarifies that the payee may fill in a signed blank cheque if it is given for a legally recoverable debt. The accused must provide substantial proof to rebut the statutory presumption.

5. Ajitsinh Chehuji Rathod vs The State Of Gujarat on 29 January, 2024

Parties: Ajitsinh Chehuji Rathod (Appellant) v. State Of Gujarat & Anr. (Respondents)

Facts:

• Ajitsinh Chehuji Rathod was accused under Section 138 of the Negotiable Instruments Act for issuing a cheque of ₹10 lakhs to Mahadevsinh Cahndaasinh Champavat.
• The cheque was dishonoured due to insufficient funds and a dormant account.
• During the trial, Rathod requested that the cheque be sent to a handwriting expert for signature verification, alleging forgery. The trial court denied this request, considering it a delaying tactic.
• Rathod appealed his conviction, seeking to introduce additional evidence (handwriting expert opinion and postal officer testimony regarding non-receipt of notice).
• Both the Principal Sessions Judge and the High Court rejected these requests, emphasising Rathod’s lack of diligence in raising these issues during the trial.

Issue: Whether the appellant, accused under Section 138 NI Act, was entitled to present additional evidence during the appeal regarding the authenticity of the cheque’s signature.

Judgment: The Supreme Court in the case of Ajitsinh Chehuji Rathod vs The State Of Gujarat held that under Sections 118 and 138 of the NI Act, the presumption of genuineness of the cheque is strong and can only be rebutted by substantial evidence. The Court emphasised that the power to allow additional evidence (Section 391 CrPC) is discretionary and should only be exercised when the party was diligent and prevented from presenting the evidence at trial.

Since Rathod failed to question the bank official or challenge the trial court’s order in time, the presumption stood in favour of the complainant. The Supreme Court dismissed the appeal, upholding the lower courts’ decisions.

Impact: The judgment reinforces that the accused must be proactive in presenting their defence and cannot expect appellate courts to assist in collecting evidence. It clarifies the evidentiary burden on the accused and the procedural finality of trial court orders in cheque bounce cases.

Conclusion

Cheque bounce cases go beyond mere legal violations, they often carry the weight of broken trust, financial distress, and reputational harm. Recognising this, the Courts are thoughtfully recalibrating the law under Section 138 of the NI Act, ensuring that financial accountability does not come at the cost of fairness. The recent rulings underscore that procedural compliance is essential, cheques issued as mere security are not automatically enforceable, and a well-grounded defence can shift the burden of proof.

These clarifications aren’t just technical, they offer real relief to the wrongly accused and restore credibility for genuine complainants. For lawyers, lenders, businesses, and the accused, these clarifications offer both clarity and direction in what was once a grey legal area. Ensuring that justice must be swift, but never one-sided. As the legal landscape evolves, the Court's stance brings a measure of hope that financial discipline can coexist with compassion, and that the law can serve both business and conscience.

Frequently Asked Questions

Whether you're a business owner, a borrower, or simply someone who issued a cheque in good faith, understanding the legal implications of a bounced cheque is crucial. Here are some commonly asked questions that clarify the key aspects of Section 138 of the Negotiable Instruments Act, 1881.

Q1. Can someone be sent to jail for a bounced cheque in India?

• Yes. If convicted under Section 138 of the Negotiable Instruments Act, 1881:
• • The court can sentence the drawer to up to two years’ imprisonment, or
  • Impose a fine up to twice the cheque amount, or
  • Both imprisonment and a fine.
• The offence is bailable and compoundable (can be settled at any stage with court approval).
• Courts often show leniency if the amount is paid quickly or it’s a first-time offence.

Q2. What is the deadline for filing a cheque bounce case?

A legal notice must be sent to the drawer within 30 days of receiving the bank’s return memo. If payment isn’t made within 15 days of receiving the notice, a complaint in court within the next 30 days must be filed. If there’s a delay, courts may allow late filing if a valid written reason is provided.

Q3. Does Section 138 apply to cheques issued as security?

Generally, no. Section 138 applies only if the cheque was given for repayment of a legally enforceable debt or liability. If the cheque was issued just as security (not for an actual debt), prosecution usually isn’t possible.

However, if the security cheque is later used to settle a real debt, Section 138 may apply depending on the circumstances.

Q4. What if the cheque amount is paid after the case is filed?

• If the drawer pays the cheque amount after the case is filed and the complainant agrees:
• • The court can allow the case to be settled and closed (compounded) at any stage, even after conviction.
  • Sometimes, the court may impose a nominal cost for late settlement.

Q5. Is cheque bounce a civil or criminal offence?

Cheque bounce is considered a criminal offence under Section 138 of the Negotiable Instruments Act, 1881. This means the person issuing the bounced cheque can face criminal prosecution, including the possibility of jail time or a fine.

At the same time, the payee (the person who was supposed to receive the money) can also file a civil case to recover the cheque amount. While both legal options are available, criminal cases are often preferred because they tend to move faster and put more pressure on the drawer to settle.

Note: A cheque bounce is a compoundable offence; this means both parties can choose to settle the matter anytime during the proceedings, with the court’s approval.

Q6. What if I miss the time limit for filing a cheque bounce complaint?

If you miss the deadline, your complaint may be dismissed as time-barred. The court can allow late filing if you provide a valid written reason for the delay. It’s important to act quickly and keep records of all dates.

Q7. How long is a cheque valid in India?

A cheque in India is valid for three months from the date of issue. This validity period was reduced from six months to three months by the Reserve Bank of India (RBI) with effect from April 1, 2012, as per RBI Circular RBI/2011-12/251, DBOD.AML BC.No.47/14.01.001/2011-12 dated November 4, 2011. After three months, a cheque cannot be enforced under Section 138 of the Negotiable Instruments Act.
Source: Reserve Bank of India Notification

Q8. Does Section 138 apply if the cheque bounces due to technical reasons (like signature mismatch)?

No. Section 138 applies only if the cheque is dishonoured due to:

• Insufficient funds, or
• Exceeding the arrangement with the bank.

For technical reasons (like signature mismatch), prosecution is generally not possible unless a legally enforceable debt is proven. The payee can ask the drawer to issue a new cheque in such cases.

Q9. Can the accused defend themselves if the cheque was lost or stolen?

Yes. If the accused proves the cheque was lost or stolen and not issued for a debt, it is a valid defence. The burden of proof lies on the accused. Filing a police complaint or notifying the bank helps strengthen this defence.

Disclaimer: The information provided here is for general informational purposes only and should not be considered legal advice. Cheque bounce cases may involve both civil and criminal proceedings under Indian laws. For case-specific guidance, especially on the criminal aspects, we recommend consulting a qualified lawyer.