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OFFENCES U/S 138 OF NEGOTIABLE INSTRUMENTS ACT

by
Smt.E.Prasuna,
Civil Judge (Senior Division)
Rayachoty

(a) Offence Under Section 138 of N. I Act- Ingredients & Case Law

Introduction
The Negotiable Instruments Act, 1881 (Hereinafter called as N.I Act)
was originally drafted in 1866 by the 3rd Indian Law Commission and
introduced in December, 1867 in the Council and it was referred to a Selection
Committee. The Draft prepared for the fourth time was introduced in the
Council and was passed into law in 1881 being the Negotiable Instruments
Act, 1881 (Act No.26 of 1881).
The Act was enacted as an attempt to consolidate the law relating to
promissory notes, bills of exchange and cheques. The main object of the Act
was to legalize the system by which instruments contemplated by it could
pass from hand to hand by negotiation like any other goods. Another purpose
of the Act was to encourage the culture of use of cheques and enhancing the
credibility of the instrument.
Following a century of the enactment of the N.I. Act, Sections 138 to
142, Chapter XVII, were inserted in the Act vide Section 4 of the Banking,
Public Financial Institutions and Negotiable Instruments Laws (Amendment)
Act, 1988, (Act 66 of 1988). These sections came into force w.e.f.
29.03.1989. Subsequently, the Negotiable Instrument Act in the year of 2015
(inserting of substitution in Explanation I (a), Explanation III in Section 6,
Section 142(2) and 142-A of N.I Act) and in the year of 2018 (insertion of
Section 143A, Section 148 of N.I Act).

Now let us see what is Negotiable Instrument?

Section 13: Negotiable Instrument;
(1) A "negotiable instrument" means a promissory note, bill of exchange or
cheque payable either to order or to bearer.
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Explanation (i):- A promissory note, bill of exchange or cheque is payable

to order which is expressed to be so payable or which is expressed to be
payable to a particular person, and does not contain words prohibiting
transfer or indicating an intention that it shall not be transferable.

Explanation (ii):- A promissory note, bill of exchange or cheque is

payable to bearer which is expressed to be so payable or on which the
only or last endorsement is an endorsement in blank.

Explanation (iii):- Where a promissory note, bill of exchange or cheque,

either originally or by endorsement, is expressed to be payable to the
order of a specified person, and not to him or his order, it is nevertheless
payable to him or his order at his option.

(2) A negotiable instrument may be made payable to two or more payees

jointly, or it may be made payable in the alternative to one of two, or
one or some of several payees.

Negotiable Instruments are of following kinds :-

1. Promissory notes
2. Bill of Exchange
3. Cheque

Section 138 of Act deals with dishonour of cheques. It has no concern with
dishonour of other negotiable instruments.

 What is a cheque?
Section 6 of the N.I. Act defines a Cheque as a bill of exchange drawn on a
specified banker and not expressed to be payable otherwise then on
demand and it includes the electronic image of a truncated cheque and a
cheque in electronic form.

Explanation I:- For the purpose of this section the expressions -

(a) a cheque in the electronic form “ means a cheque drawn in electronic
form by using any computer resource and signed in a secure system
with digital signature (with or without biometrics signature) and
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asymmetric crypto system or with electronic signature , as the case

may be;
(b) a truncated cheque means a cheque which is truncated during the
course of a clearing cycle, either by the clearing house or by the bank
whether paying or receiving payment, immediately on generation of an
electronic image for transmission, substituting the further physical
movement of the cheque in writing

Explanation II:- For the purposes of this section, the expression clearing
house means the clearing house managed by the Reserve Bank of India or
a clearing house recognized as such by the Reserve Bank of India.

Explanation III:- For the purposes of this section, the expression

“asymmetric crypto system”, computer resource”, “digital signature”,
“electronic form” and electronic signature “ shall have the same meanings
respectively assigned to them in the Information Technology Act,2000’.

 Ingredients Of The Offence Under Section 138 Of N.I Act:

The ingredients of the offence as contemplated under section 138 of the
Act are as under : Though section 138, N.I. Act penalizes the dishonour of
a cheque, however, dishonour of a cheque is, by itself, not an offence
under section 138 of the N.I. Act. To become an offence, the following
ingredients have to be fulfilled:
(a) The cheque for an amount is issued by the drawer to the payee /
complainant on a bank account maintained by him.
(b) The said cheque is issued for the discharge, in whole or in part of any
debt or other liability.
(c) The cheque is returned by the bank unpaid on account of insufficient
amount to honour the cheque or it exceeds the amount arranged to be
paid from that account by an agreement made with the bank.
(d) The cheque is presented within 3 months from the date on which it is
drawn or within the period of its validity.
(e) 30 days demand notice is issued by the payee or the holder in due
course on receipt of information by him from the bank regarding the
dishonour of the cheque.
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(f) The drawer of said cheque fails to make payment of the said amount of
the money to the payee or the holder on due course within 15 days of
the said notice.
(g) The debt or liability against which the cheque was issued is legally
enforceable. (Kusum Ingots and Alloys Ltd. Vs Pennar Peterson
Securities Ltd (2000)2 SCC 745)
(h) Failure of the drawer to make the payment within 15 days of receipt of
the notice. The cheque must have been drawn for discharge of existing
debt or liability. Legally recoverable debt:

In Somnath vs. Mukesh Kumar, 2015(4) Law Herald 3629 (P&H) it

was held by the Hon'ble High Court the complaint under Section 138 is not
maintainable when the cheque in question had been issued qua a time barred debt.

Similarly, supari money for commission of crime is not legally recoverable

debt and complaint under Section 138 is not maintainable in such a case.
A mere presentation of delivery of cheque by accused would not amount to
acceptance of any debt or liability. Complainant has to show that cheque was
issued for any existing debt or liability. Thus, if cheque is issued by way of gift
and it gets dishonoured offence under section 138 of the Act will not be
attracted.

 Time Frame In Respect Of The Offence Under Section 138, N.I. Act
 The cheque has to be 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. [section 138 proviso (a)]. The Reserve
Bank of India vide Notification No, DBOD.AML BC.No.47/14.01.001/
2011-12 has made the period of validity of a cheque to be three
months now. Hence, as of now, the cheque has to be presented within
three months from the date on which it was drawn.
 The payee or holder in due course of the cheque has to make a demand
for payment of the amount due by giving a notice in writing to the
drawer of the cheque within 30 days of the receipt of information by
him from the bank regarding dishonour of the cheque. [Section 138
proviso (b)]
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 The drawer of the cheque has to fail to make the payment of the
amount to the payee or holder in due course within 15 days of the
receipt of the said notice [Section 138 proviso (c)].
The complaint has to be filed within one month of the date on which the
cause of action arises under clause (c) of the proviso to Section 138 N.I. Act.
[Section 142].

 The object of this amendment Act is:

(a) To regulate the growing business, trade, commerce and Industrial
activities.
(b) To promote greater vigilance in financial matters.
(c) To safeguard the faith of creditors in drawer of cheque. (Krishna vs.
Dattatraya 2008(4) Mh.L.J.354 (Supreme Court)

However, it was found that punishment provided was inadequate, the

procedure prescribed cumbersome and the courts were unable to dispose of
the cases expeditiously and in time bound manner. Hence, the Negotiable
Instruments (Amendment and Miscellaneous provisions Act 2002) was
passed. The provisions of section 143 to 147 were newly inserted and
provisions of section 148, 141, 142 were amended.

 The Object Of Section 138 Of N.I Act:

In the world of business, the cheque, as a negotiable instrument, was
losing its credibility because of lack of responsibility on the part of the drawer.
To bring back that credibility, to inculcate faith in the efficacy of banking
operations in transacting business on negotiable instrument in general to
bring the erring drawer to book , so that such irresponsibility is not
perpetuated, to protect the honest drawer, to safe guard the payee who is
almost a loser, this section was brought on statute. This aspect has been
stated in the decision reported in 2008(2) SCC 305= AIR 2008 SC 716-
Vinaya Devanna Nayak Vs Ryot Sewa Sahakari Bank Ltd. Also refer the
decision in the case of Bir Singh Vs Mukesh Kumar reported in (2019) 4
SCC 197.
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The Parliament in its wisdom had chosen to bring section 138 on the
Statute book in order to introduce financial discipline in business dealings.
Prior to insertion of section 138 of the Negotiable Instruments Act, a
dishonoured cheque left the person aggrieved with the only remedy of filing a
claim. The object and purpose of bringing new provisions in the Act was to
make the persons dealing in commercial transactions work with a sense of
responsibility and for that reason, under the amended provisions of law, lapse
on their part to honour their commitment renders the person liable for
criminal prosecution. In our country, in a large number of commercial
transactions, it was noted that the cheques were issued even merely as a
device not only to stall but even to defraud the creditors. The sanctity and
credibility of issuance of cheques in commercial transactions was eroded to a
large extent. The Parliament, in order to restore the credibility of cheques as a
trustworthy substitute for cash payment, enacted the aforesaid provisions.
The remedy available in Civil Court is a long drawn matter and an
unscrupulous drawer normally takes various pleas to defeat the genuine claim
of the payee. Goa Plast (P) Ltd. v. Chico Urrsula D'souza, (2004) 2 SCC
235.

Component Of Offence:
Section 138 of the Act makes it an offence where may cheque drawn by
a person on any account maintained by him in a Bank for payment of any
amount to other person is returned unpaid by the Bank for insufficiency of the
deposit or for the amount payable exceeding such deposit. The components of
offence under this provision are
(a) drawing of the cheque for some amount;
(b) presentation of the cheque to the banker;
(c) return of the cheque unpaid by the drawee bank;
(d) giving of notice by the holder of the cheque or payee to drawer of
the cheque demanding payment of cheque amount;
(e) failure of drawer to make payment within 15 days of receipt of such
notice. Harman Electronics Pvt. Ltd. Vs. National Panasonic India
Ltd.(2009)1 SCC 720
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Indra Kumar Patodia Vs. Reliance Industries Ltd.(2012) 13 SCC 1 –

Complaint without the signature of complainant is maintainable when it is
verified by the complainant and the process is issued by the Magistrate after
due verification. (AIR 2013 SC 426)

 Drawing of a Cheque:
The drawer in payment of a legal liability to discharge the existing debt
should have drawn cheque. Therefore any cheque given say by way of gift
would not come within the purview of the section. It should be a legally
enforceable debt; therefore time barred debt and money-lending activities are
beyond its scope. The words any debt or any other liability appearing in
section 138 make it very clear that it is not in respect of any particular debt or
liability The presumption which the Court will have to make in all such cases is
that there was some debt or liability once a cheque is issued. It will be for the
accused to prove the contrary. i.e., there is no debt or any other liability. The
Court shall statutorily make a presumption that the cheques were issued for
the liability indicated by the prosecution unless contrary is to be proved
Sivakumar Vs. Natrajan (2009) 13 SCC 623.

 Cheque not issued from the account of the accused : Where the
Complaint lacks necessary ingredients of the offence under Section 138:
Hon’ble Supreme Court in Jugesh Sehgal v. Shamsher Singh Gogi,
(2009) 14 SCC 683 has observed
“22. As already noted herein before, in Para 3 of the complaint,
there is a clear averment that the cheque in question was issued
from an account which was non-existent on the day it was
issued or that the account from where the cheque was issued
“pertained to someone else”. As per the complainant’s own
pleadings, the bank account from where the cheque had been
issued, was not held in the name of the appellant and therefore,
one of the requisite ingredients of Section 138 of the Act was
not satisfied.”

The Court also noted that one of the essential ingredients of the offence
punishable under Section 138 of Negotiable Instruments Act is that the
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cheque must have been drawn on an account maintained by the accused.

Since the cheque in the case before the Hon’ble Supreme Court was not
issued from the account maintained by the petitioner, it was held that one
essential ingredient of offence under Section 138 of Negotiable Instruments
Act was not present.”
The matter was referred to a larger bench in the case of Aneeta Hada
Vs God father Tour and Travels Ltd (2008)13 SCC 703 to be ultimately
decided by the Hon’ble Supreme Court of India in the following terms
“Arraigning of the Company as accused imperative (2012) 5 SCC 661.
It was further held in the case of Aparna A. Shah Vs Sheth
Developers Pvt Ltd and Anr(2013)8 SCC 71 that in case of joint account
only the drawer is liable. The same view has been retreated by the Apex Court
in the recent ruling of N Harihara Krishna Vs J. Thomas reported in 2017
SCC Online SC 1017.

 Sections 138, 141 & 142 of N.I Act – Dishonour of cheque – offence by
company – Issuance of individual notices under section 138 to them, held,
not required as For dishonor of cheque drawn by company, appellant
issued notice under section 138 to accused company, but no individual
notices were given to its Directors- Held, Section 138 does not admit of
any necessity or scope for reading into it, requirement that Directors of
company in question must also be issued individual notices under section
138 – Such Directors who are in charge of and responsible for affairs of
company, would be aware of receipt of notice by company under section
138 (2015) 8 SC Cases 28 AIR 2015 SC 2091 Kirshna Texport and
Capital markets limited Vs.Ila A.Agarwal and others

 Presentation Of Cheque:
The presentation of cheque should be within its validity period. Generally a
cheque is valid for six months, but there are cheques whose validity period
is restricted to three months etc. The question arises as to which bank the
cheque should reach within the validity period, is it the payee to his bank
presents that of drawer’s bank or it is enough if the cheque before six
months. Common sense demands that the cheque should reach the drawer
bank within the period of validity as it is that bank that either pays or
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rejects payment as per the situation existing on that day Central Bank of
India and Another Vs. Saxon Farms and others (1999)8 SCC 221.
The Hon’ble supreme court has held If within limitation- Two
consecutive notices sent by payee by registered post to correct address of
drawer of cheque: first one sent within limitation; period of 15 days but same
was returned with postal endorsement “intimation served, addressee absent”,
whereas second one sent after expiry of stipulated period of limitation Held,
first notice would be deemed to have been duly effected by virtue of Section.
27 of General Clauses Act and Section. 114 of Evidence Act- Though drawer
entitled to rebut that presumption, but in absence of rebuttal, requirement of
section 138 proviso (b) would stand complied with- subsequent notice should
be treated only as reminder and would not affect validity of first to achieve
that right of honest lender is not defeated. (2017) 5 SC cases 737: 2017
SCC Online SC 293 AIR 2017 SC 1681 : (2017) 2 Crimes 62 (SC) N.
Parameswaran Unni Vs. G. Kannan and Another
The Hon’ble Supreme Court in Sadanandan Bhadran vs. Madhavan
Sunil Kuar [(1998) 6 SCC 514], held that while the payee was free to
present the cheque repeatedly within its validity period, once notice had been
issued and payments not received within 15 days of the receipt of the notice,
the payee has to avail the very cause of action arising thereupon and file the
complaint [Prem Chand Vijay Kumar vs. Yashpal Singh & Anr. [(2005)
4 SCC 417]. Dishonour of the cheque on each re-presentation does not give
rise to a fresh cause of action. But the law was settled finally overruling all the
contrary views in terms of the judgment of (2013) 1 SCC 177 MSR
Leathers Vs. S. Planniappan and Another that so long the cheque remains
valid the prosecution based on subsequent presentation is permissible so long
as it satisfies all the requirements of section 138 of NI Act. Re-presentation of
cheque after dishonor – Limitation period for filing complaint for dishonor of
cheque upon re-presentation of cheque – Date from which to be reckoned –
Legal notice to drawer must be issued within 30 days of that dishonor of
cheque, which matures into complaint – Though first legal notice was issued
within two days of first dishonor of cheque, second legal notice issued to
drawer of cheque beyond limitation period of 30 days – Information as to
second dishonor was received from Bank on the same day itself.
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Held, although the complainant had right to present the said cheque for
encashment a second time after its dishonor, the legal notice pursuant to
second dishonor had to be issued within 30 days of the receipt of information
as to second dishonor from Bank, which was not done- Hence, complaint filed
on basis of notice dt. 17-12-2008 was not maintainable in view of non-
compliance with all the three conditions laid down in Section 138 NI Act as
explained in MSR Leather, (2013) 1 SCC 177 (2014) 2 SC cases 424 AIR
2014 SC 660 Kamlesh Kumar Vs. State of Bihar and another.
This Court has noted that the object of the statute was to facilitate
smooth functioning of business transactions. The provision is necessary as in
many transactions cheques were issued merely as a device to defraud the
creditors. Dishonour of cheque causes incalculable loss, injury and
inconvenience to the payee and credibility of business transactions suffers a
setback. [Goa Plast (P) Ltd. v. Chico Ursula D'Souza, (2004) 2 SCC 235,
p. 248, para 26: 2004 SCC (Cri) 499] At the same time, it was also noted
that nature of offence under Section 138 primarily related to a civil wrong and
the 2002 Amendment specifically made it compoundable. [Vinay Devanna
Nayak v. Ryot Sewa Sahakari Bank Ltd., (2008) 2 SCC 305: (2008) 1
SCC (Civ) 542 : (2008) 1 SCC (Cri) 351] The offence was also described
as "regulatory offence". The burden of proof was on the accused in view of
presumption under Section 139 and the standard of proof was of
"preponderance of probabilities". [Rangappa v. Sri Mohan, (2010) 11 SCC
441, p. 454, para 28: (2010) 4 SCC (Civ) 477: (2011) 1 SCC (Cri) 184]
The object of the provision was described as both punitive as well as
compensatory. The intention of the provision was to ensure that the
complainant received the amount of cheque by way of compensation. Though
proceedings under Section 138 could not be treated as civil suits for recovery,
the scheme of the provision, providing for punishment with imprisonment or
with fine which could extend to twice the amount of the cheque or to both,
made the intention of law clear. The complainant could be given not only the
cheque amount but double the amount so as to cover interest and costs.
Section 357(1)(b) of Cr.P.C ,now section 395 of Bharathiya Nagarik Suraksha
Sanhitha, 2023 (Herein after called as BNSS) provides for payment of
compensation for the loss caused by the offence out of the fine. [R. Vijayan
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v. Baby, (2012) 1 SCC 260, p. 264, para 9: (2012) 1 SCC (Civ) 79:
(2012) 1 SCC (Cri) 520] Where fine is not imposed, compensation can be
awarded under Section 357(3) Cr.P.C, now section 395 of BNSS to the person
who suffered loss. Sentence in default can also be imposed. The object of the
provision is not merely penal but to make the accused honour the negotiable
instruments. [Lafarge Aggregates & Concrete India (P) Ltd. v. Sukarsh
Azad, (2014) 13 SCC 779, p. 781, para 7: (2014) 5 SCC (Cri) 818]
In view of the above scheme, this Court held that the accused could
make an application for compounding at the first or second hearing in which
case the court ought to allow the same. If such application is made later, the
accused was required to pay higher amount towards cost, etc. [Damodar S.
Prabhu v. Sayed Babalal H., (2010) 5 SCC 663: (2010) 2 SCC (Civ) 520
: (2010) 2 SCC (Cri) 1328] This Court has also laid down that even if the
payment of the cheque amount, in terms of proviso (b) to Section 138 of the
Act was not made, the court could permit such payment being made
immediately after receiving notice/summons of the court. [D. Vinod
Shivappa v. Nanda Belliappa, (2006) 6 SCC 456 : (2006) 3 SCC (Cri)
114; C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555:
(2007) 3 SCC (Cri) 236] The guidelines in Damodar [Damodar S. Prabhu
v. Sayed Babalal H., (2010) 5 SCC 663 : (2010) 2 SCC (Civ) 520 :
(2010) 2 SCC (Cri) 1328] have been held to be flexible as may be
necessary in a given situation. [M.P. State Legal Services Authority v.
Prateek Jain, (2014) 10 SCC 690, p. 701, para 23: (2015) 1 SCC (Civ)
74: (2015) 1 SCC (Cri) 211] Since the concept of compounding involves
consent of the complainant, this Court held that compounding could not be
permitted merely by unilateral payment, without the consent of both the
parties. [Rajneesh Aggarwal v. Amit J. Bhalla, (2001) 1 SCC 631: 2001
SCC (Cri) 229]
In view of the above, where the cheque amount with interest and cost
as assessed by the court is paid by a specified date, the court is entitled to
close the proceedings in exercise of its powers under Section 143 of the Act
read with Section 258 Cr.P.C. (now section 281 of B.N.S.S) As already
observed, normal rule for trial of cases under Chapter XVII of the Act is to
follow the summary procedure and summons trial procedure can be followed
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where sentence exceeding one year may be necessary taking into account the
fact that compensation under Section 357(3) Cr.P.C, now section 395 of
B.N.S.S with sentence of less than one year will not be adequate, having
regard to the amount of cheque, conduct of the accused and other
circumstances.

(b) Cognizance, Limitation, Jurisdiction – A Study

COGNIZANCE
Section 142: Cognizance of offences:- (1) Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974), -
i. no court shall take cognizance of any offence punishable under
section 138 except upon a complaint, in writing, made by the payee
or, as the case may be, the holder in due course of the cheque;
ii. such complaint is made within one month of the date on which the
cause of action arises under clause (c) of the proviso to section 138:
iii. (Provided that the cognizance of a complaint may be taken by the
Court after the prescribed period, if the the complainant satisfies the
Court that he had sufficient cause for not making a complaint within
such period;)
iv. no court inferior to that of a Metropolitan Magistrate or a Judicial
Magistrate of the first class shall try any offence punishable under
section 138.].
(2) The offence under section 138 shall be inquired into and tried only by a
court within whose local jurisdiction, -
i. if the cheque is delivered for collection through an account, the
branch of the bank where the payee or holder in due course, as the
case may be, maintains the account, is situated; or
ii. if the cheque is presented for payment by the payee or holder in
due course, otherwise through an account, the branch of the drawee
bank where the drawer maintains the account, is situated.

Explanation- For the purposes of clause (a), where a cheque is delivered for
collection at any branch of the bank of the payee or holder in due course,
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then, the cheque shall be deemed to have been delivered to the branch of the
bank in which the payee or holder in due course, as the case may be,
maintains the account.]

When should the Magistrate take Cognizance?

Even without recording sworn statements of the complainants and his
witnesses, the magistrate should take cognizance of offence. Refer ILR 1998
Kar 666 – Mahadeva Vs. Papireddy, 1997 (4) KLJ 23-Vishwa Cement
Products Vs. KSFC, AIR 2000 SC 2946 – Narsingdas Tapadia Vs.
Goverdhan Das Partani.

Can the Court take cognizance if notice is not served on the drawer?
No cognizance can be taken if notice is not served on the drawer.
Refer (1999) 8 SCC 221 – Central Bank of India Vs. Saxons Farms,
AIR 2002 SC 182 – MMTC Ltd., Vs. Medchi Chemicals & Pharma
Pvt. Ltd.,

Whether sworn statement can be recorded by way of affidavit?

In the decision reported in ILR 2005 Kar 2890 in the case of
K.Srinivasa Vs Kashinath, it is held that the Court may accept affidavit in
lieu of oral sworn statement before the Court. However, in a subsequent
decision reported in ILR 2008 Kar 424 in the case of K. Venkatramaiah
and others vs Sri Katterao, a passing observation is made that affidavit
cannot be accepted in lieu of oral sworn statement before the Court. But,
Bombay High Court has taken a similar view and ordered to circulate the copy
of the order to the Magistrates to follow uniform procedure. The relevant
decision is reported in 2007-BCR-2-630-Maharaja Developers Vs.
Udaysing S/o. Pratapsinghrao Bhonsle (Division bench). However, this
aspect of procedure has been set at rest by the decision reported in ILR 2009
Kar 3477 - Smt.B.R.Premakumari vs Supraja Credit Co-operative
Society Ltd (para 7) that even in an offence under Section 138 of the Act,
the Sworn statement has to be recorded by the Magistrate and affidavit
cannot be accepted in the place of sworn statement. However, on a reference
to the divisional bench, the Divisional bench has answered the reference made
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by single judge stating that sworn statement can be recorded by way of

Affidavit. (Cr. R.P 2604/2012).

Is it possible to take cognizance once again, when it is contended by

the accused that the issue of process on the basis of sworn statement
by way of affidavit is improper?
No, because once cognizance is taken rightly or wrongly, the remedy
that is available is only by challenging the same either before the Sessions
Court or High Court. Magistrate cannot take cognizance twice. Refer the
decisions reported in AIR 1976 SC 1672 Devarapalli Lakshminarayana
Reddy vs V. Narayana Reddy and AIR 2004 SC 4674 Adalat Prasad vs.
Rooplal Jindal.

Whether cognizance can be taken immediately after filing of the

complaint, when it is noticed that there is delay in filing complaint?
Cognizance cannot be taken immediately after filing of the complaint,
when it is noticed that there is delay in filing complaint, because, if there is
delay in filing complaint, it would be proper to issue notice to the accused, of
delay condonation application and after deciding delay condonation
application, to take cognizance, as per the decision reported in AIR 2008 SC
1937 P. K. Choudhury v. Commander, 48 BRTF (GREF).

LIMITATION
This being a special legislation certain time limit has been laid down and
they should be strictly followed. Any lapse in adhering to the schedule, shall
take away a cause of action under section 138 of N.I Act. The time limits
placed cannot be condoned by the Courts. Therefore the question of making
an application for condonation of delay as in the case of civil proceedings,
does not arise at all under the said section. What then are the limitations one
has to keep in one mind and follow them strictly to prosecute the drawer of
cheque who has failed to pay the said sum within fifteen days from the receipt
of the notice.
 Cheque should be presented to the bank for encashment within its validity
period (03 months).
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 Within fifteen days from the receipt of return memo indicating reason of
dishonour, a notice should be sent demanding the amount of dishonored
cheque.
 If the drawer does not pay the amount of dishonoured cheque within the
grace period, a complaint thereafter should be filed within one month in
the relevant court of Metropolitan Magistrate/Judicial Magistrate as the
case may be, having jurisdiction.

What is the time limit within which the demand notice be issued?
30 days. The period of limitation has to be counted from the date of
receipt by the payee of the information from the Bank. Refer AIR 2001 SC
2752 in the case of M/S. Munoth Investments Ltd., Vs. M/S. Puttukota
Properties Ltd., & Another and 2009(8) SCALE 431-Shivakumar Vs
Nataarajan (para 12).

How to calculate period of limitation for filing the complaint?

The cause of action arises on the 16th day of receipt of demand notice
by the drawer and complaint should be filed within one month from that day.
Relevant decision reported in AIR 1999 SC 1090 – Saketh India Ltd., Vs.
India Securities Ltd., The Hon’ble Supreme Court has held that without
excluding any day the period has to be counted. This has been reiterated in a
latest decision of Apex Court reported in 2013 (8) LAWS (SC) 58 in the case
of Econ Antri Ltd Vs. Rom Industries Ltd. Also refer 2014 (3) JT 128-
Rameshchandra Ambalal Joshi Vs. State Of Gujarat

How to calculate the notice period as prescribed under section 138

(B) of N.I Act?
While calculating the limitation of 15 days to issue demand notice, the
day on which the information of dishonour is received from the bank should
be excluded. Relevant decisions are reported in 2001(5)-Kantlj- 449 = ILR
2001 Kar 4987 – Raju Indani Vs. Veerendra Hegade (para 5), 2008(1)
KCCR 112 – P. S.Aithala Vs. Ganapathy N. Hegde (para 8).
 16

Is it necessary to issue notice of delay condonation application to

accused before issuing process?
Yes. Relevant decision is reported in ILR 2006 Kar 3771-Sajjan
Kumar Jhunjhunwala VS. Eastern Roadways Pvt. Ltd.

Whether period spent in conducting the case before wrong Court can
be condoned?
Yes. If it is shown and made out sufficient grounds, then such delay can
be condoned. Refer the decision in the case of Charanjit Pal Jindal Vs L.N.
Metalics- 2015-5 SCALE 16=2015(2) JCC—137.

JURISDICTION/TERRITORIAL JURISDICTION
Which Court has jurisdiction to try the offences u/s 138?
The offences u/s 138 is the net result of series of acts, may be omissions and
commissions. Considering ingredients of section 138 referred above Hon'ble
Apex Court in case of K. Bhaskaran vs. Shankaran AIR 1999, SC 3762,
had given jurisdiction to initiate the prosecution at any of the following
places:
1. Where cheque is drawn?
2. Where payment had to be made?
3. Where cheque is presented for payment?
4. Where cheque is dishonoured?
5. Where notice is served upto drawer?

However, recently in case of Dashrath Rupsingh Rathod vs. State of

Maharashtra, reported in MANU /SC/ 0655/ 2014 interpreted various
provisions of section 138 of Negotiable Instruments Act and held,
1. An offence under Section 138 of the Negotiable Instruments Act, 1881 is
committed no sooner a cheque drawn by accused on an account being
maintained by him in a bank for discharge of debt/liability is returned
unpaid for insufficiency of funds or for the reason that the amount exceeds
the arrangement made with the bank.
2. Cognizance of any such offence is however forbidden under Section 142 of
the Act except upon a complaint in writing made by payee or holder of
cheque in due course within a period of one month from the date of cause
 17

of action accrues to such payee or holder under clause (c) of proviso to

Section 138.
3. Cause of action to file a complaint accrues to a complainant /payee/ holder
of a cheque in due course if,
 The dishonoured cheque is presented to the drawee bank within a
period of three months from the date of its issue.
 If complainant has demanded payment of cheque amount within thirty
days of receipt of information by him from the bank regarding the
dishonour of cheque and
 If the drawer has failed to pay the cheque amount within fifteen days of
receipt of such notice
4. The facts constituting cause of action do not constitute the ingredients of
the offence under Section 138 of the Act.
5. Proviso to Section 138 simply postpones/ defers institution of criminal
proceedings and taking of cognizance by Court till such time cause of
action in terms of clause (c) of proviso accrues to the complainant.
6. Once the cause of action accrues to complainant, jurisdiction of Court to
try the case will be determined by reference to the place where cheque is
dishonoured.
7. General rule stipulated under Section 177 of Cr.P.C (now section 197 of
B.N.S.S.) applies to cases under Section 138 of the Negotiable
Instruments Act. Prosecution in such cases can, therefore, be launched
against the drawer of the cheque only before the Court within whose
jurisdiction the dishonour takes place except in situations where the
offence of dishonour of cheque punishable under Section 138 is committed
along with other offences in a single transaction within the meaning of
Section 220(1) read with section 184 of Cr.P.C. (now section 204 of
B.N.S.S.) are is covered by the provisions of Section 182(1) read with
section 184 and section 220 thereof.
However, to increase the credibility of cheques as financial instruments and
to clarify the issues of jurisdiction, the Parliament enacted The Negotiable
Instruments (Amendment) Act, 2015. The Amendment Act of 2015 amended
Section 142 to decisively lay down the territorial jurisdiction of courts deciding
 18

cases under section 138, N.I. Act. Following the amendment was made in
Section 142 (2), N.I Act reads as follows:
The offence under section 138 shall be inquired into and tried only by a
court within whose local jurisdiction,—
1. if the cheque is delivered for collection through an account, the branch
of the bank where the payee or holder in due course, as the case may
be, maintains the account, is situated; or
2. if the cheque is presented for payment by the payee or holder in due
course, otherwise through an account, the branch of the drawee bank
where the drawer maintains the account, is situated.

What is the Course open to the Court if it has no jurisdiction to try

the case?
The Court has to return the complaint for proper presentation before the
jurisdictional Court instead of dismissing the complaint. Relevant decision is
reported in (Canara bank Financial Services Limited v. Pallav Sheth
[2001 (5) Supreme 305] = 2001(3) Crimes (SC) 336.

(c) Interim Compensation and its recovery

As per section 143A of the Act , Court has power to grant interim
compensation during pendency of the proceedings. Power to Grant Interim
Compensation in Cheque Bounce Cases under section 143A of N.I Act is
Discretionary. The Hon’ble Supreme Court Issued Guidelines in Rakesh
Ranjan Shrivastava vs. The State Of Jharkhand & Anr (Neutral Citation
2024 INSC 205).
The Hon’ble Supreme Court held that the exercise of power to grant
interim compensation in cheque bounce cases under sub-section (1) of
Section 143A of the Negotiable Instruments Act, 1881 (N.I. Act) is
discretionary and not mandatory. The complainant filed a complaint under
Section 138 of the N.I. Act against the appellant, alleging dishonour of a
cheque made towards payment of agreed amounts in various business
ventures. Subsequently, the complainant sought interim compensation under
Section 143A of the NI Act, which was granted by the trial court and upheld
by the Jharkhand High Court. The Supreme Court had to decide on the factors
 19

to be considered while exercising powers under sub-section (1) of Section

143A of the N.I. Act. Justice Abhay S. Oka and Justice Ujjal Bhuyan observed,
“Section 143A can be invoked before the conviction of the accused, and
therefore, the word “may” used therein can never be construed as “shall”. The
tests applicable for the exercise of jurisdiction under sub-section (1) of
Section 148 can never apply to the exercise of jurisdiction under subsection
(1) of Section 143A of the N.I. Act.”
The appellant had challenged the said order before the Supreme Court
arguing that Section 143A of the N.I Act uses the word ‘may,’ which made the
provision discretionary. “While deciding the prayer made under Section 143A,
the Court must record brief reasons indicating consideration of all relevant
factors,” the Court remarked .The Court provided the following parameters for
exercising the discretion under Section 143A of the N.I. Act:
The Court must evaluate the merits of a case made out by the
complainant and the defence pleaded by the accused in the reply to the
application. “The financial distress of the accused can also be a consideration.”
If a complainant made out a prima facie case, only then a direction to
pay interim compensation could be issued by the Court.
The Court may exercise discretion in refusing to grant interim
compensation if the defence of the accused was found to be prima facie
plausible.
If the Court concludes that a case warrants interim compensation, it will
also "have to apply its mind to the quantum of interim compensation to be
granted." While doing so, the Court should also consider several factors such
as the nature of the transaction, the relationship if any, between the accused
and the complainant, etc.
The Court stated the parameters given by the Court were not
exhaustive and that “there could be several other relevant factors in the
peculiar facts of a given case.”
Section 143A of the Act is prospective. Court has power to grant
interim compensation during pendency of the proceedings, as held in the case
of G. J Raja Vs Tejraj Surana, reported in (2019) 19 SCC 469
 20

Interim compensation is not mandatory but discretionary directory as

held by Delhi High Court in the case of M/S JSB Cargo and freight
forwarder Pvt Ltd Vs State and another. Similar view has been expressed
by Madras High Court in the case LGR enterprises Vs P Anbazhvgan.
Karnataka High Court in the case of V Krishnamurthy Vs Diary
Classic ICE Creams Pvt Ltd, reported in 2022 SCC Online Kar 1047, has
held that the conduct of the accused is relevant consideration while deciding
the application for interim compensation. The discretion to be exercised by
the magistrate is twofold, how accused cooperates with the Court for early
disposal of the case, Etc,. It is not mandatory to award interim compensation
in every case.

Power of Appellate Court to order payment of fine or compensation:

The Appellate Court can order for payment pending appeal against
conviction under section 148 of the N.I ACT. Above provision is analogous to
Section 143A of the N.I Act.
The amount deposited can be released to the complainant with
condition to refund it back with interest, pending appeal, as held in the
decision in the case of N Narasimhamurthy Vs. Santhosh J, reported in
ILR 2019 Kar 2058=(2019) 2 Kar.LJ 713.

Recovery of Fine and Compensation

Further, in order to recover the fine and compensation which has been
discussed in the decision reported in Dilip S. Dahanukar v. Kotak Mahindra
Co. Ltd., (2007) 6 SCC 528, at page 538, wherein, it is held that fine for
an offence under Section 138 of the Act can be imposed only in terms of the
provisions of the Act, when fine is not imposed, compensation can be directed
to be paid for loss or injury caused to the complainant by reason of
commission of such offence. The fine can be recovered under Section 421 of
Cr.P.C (now 461 of B.N.S.S.) Section 431 provides for a legal fiction in terms
whereof any money other than a fine shall be recoverable as if it was a fine.
Section 357 (2) Cr.P.C would be attracted in such a situation. There does not
appear to be any reason as to why the amount of compensation should be
held to be automatically payable, although, the same is only to be recovered,
as if, a fine has been imposed.
 21

In the case of Surinder Singh Deswal @ Col. S.S. Deswal and

Ors. v. Virender Gandhi, (2020) 2 SCC 514, the Hon’ble Supreme Court of
India addressed the issue of non-payment of interim compensation under
Section 143A of the Negotiable Instruments Act, 1881.
The court held that if the accused fails to pay the interim
compensation as directed under Section 143A, the court can resort to the
provisions of Section 421 of the Code of Criminal Procedure (now 461 of
Bharatiya Nagarik Suraksha Sanhita, 2023) for recovery. Additionally, the
court clarified that non-payment of interim compensation can also lead to the
cancellation of bail granted to the accused. So, apart from the remedy under
Section 421 Cr.P.C. (now 461 of B.N.S.S.) the court may consider the
cancellation of bail as a consequence of non-payment of interim
compensation. This serves as an additional measure to ensure compliance
with the order of interim compensation.

What is the effect of accused depositing the cheque amount when the
appeal against his conviction is pending?
When the accused deposited the cheque amount during the pendency
of the appeal against the conviction, the Court remitted back the matter and
complainant was allowed to withdraw the money so deposited. In such cases,
the Court can either set aside the conviction or if it declines to do so, can
convict the accused or impose fine. Relevant decision is reported in AIR 2000
SC 3145-M/S Cranex Ltd & another M/S Nagarjuna Finance Ltd &
another.

(d) Compounding Of Offences – Execution Of Lok Adalat Award

Section 147:- Offences to be compoundable - Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence
punishable under this Act shall be compoundable.

Is the offence under Section 138 of N.I Act compoundable?

After amendment and insertion of Section 147 it is compoundable. The
purpose of compounding the offence has been stated in the decisions reported
 22

in AIR 2000 SC 3543- P.Mohanbabu Vs. D. Ramaswamy, AIR 2004 SC

3978 Anil Kumar Haritwal v. Alka Gupta, AIR 2008 SC 716 Vinay
Devanna Nayak v. Ryot Seva Sahakari Bank Ltd., AIR 2010 SC 276 K.
M. Ibrahim v. K. P. Mohammed. In the latest decision reported in AIR
2010 SC 1907 = 2010 AIR (SCW) 2929 = 2010-ADJ-4-464 – Damodar
S. Prabhu vs. Sayed Babalal H, the Apex Court has issued the following
guidelines. They are:
In the circumstances, it is proposed as follows:
That directions can be given that the Writ of Summons be suitably
modified making it clear to the accused that he could make an application for
compounding of the offences at the first or second hearing of the case and
that if such an application is made, compounding may be allowed by the Court
without imposing any costs on the accused.
If the accused does not make an application for compounding as
aforesaid, then if an application for compounding is made before the
Magistrate at a subsequent stage, compounding can be allowed subject to the
condition that the accused will be required to pay 10% of the cheque amount
to be deposited as a condition for compounding with the Legal Services
Authority, or such authority as the Court deems fit.
Similarly, if the application for compounding is made before the
Sessions Court or a High Court in revision or appeal, such compounding may
be allowed on the condition that the accused pays 20% of the cheque amount
by way of costs.
Finally, if the application for compounding is made before the Supreme
Court, the figure would increase to 20% of the cheque amount. Let it also be
clarified that any costs imposed in accordance with these guidelines should be
deposited with the Legal services Authority operating at the level of the Court
before which compounding takes place. For instance, in case of compounding
during the pendency of proceedings before a magistrate’s Court or a Court of
Sessions, such costs should be deposited with the District Legal Services
Authority. Likewise, costs imposed in connection with composition before the
High Court should be deposited with the State Legal services Authority and
those imposed in connection with composition before the Supreme Court
should be deposited with the National Legal Services Authority.)
 23

Some more guidelines have been issued by the Apex Court in the case
of Madhya Pradesh State Legal Services Authority Vs. Prateek Jain
reported in (2014) 10 SCC 690, as follows;
In the opinion of the Court, since Section 147 of the Act did not carry
any guidance on how to proceed with compounding of the offences under the
Act and Section 320 of the Code of Criminal Procedure, 1973 (now section
359 of Bharatiya Nagarik Suraksha Sanhita, 2023) could not be followed in
strict sense in respect of offences pertaining to Section 138 of the Act, there is
a legislative vacuum which prompted the Court to frame those guidelines to
achieve the following objectives:
 to discourage litigants from unduly delaying the composition of offences
in cases involving Section 138 of the Act;
 it would result in encouraging compounding at an early stage of
litigation saving valuable time of the Court which is spent on the trial of
such cases; and
 even though imposition of costs by the competent Court is a matter of
discretion, the scale of cost had been suggested to attain uniformity.
 At the same time, the Court also made it abundantly clear that the
concerned Court would be at liberty to reduce the costs with regard to
specific facts and circumstances of a case, while recording reasons in
writing for such variance.

Whether Award passed by the Lok Adalath in a case referred to it can

be executed in Civil Court?
Award passed by the Lok Adalath in NI ACT case can be executed in
Civil Court. It can be executed before a Civil Court as if as it is passed by a
Civil Court. As per the decision, reported in the case of K N Govind Kutty
Menon Vs C.D Shaji, arising out of SLP (C ) No. 2798/2010 dated 28-11-
201, reported in 2011(8) Supreme 292.
However, in the decision, in the case of Sri Somashekhar Reddy Vs
Smt. G S Geetha, in WP No.23519 of 2018(GM- RES), held that
‘depending upon the terms of a compromise arrived at before lok-adalath it
can be enforced as a Civil Decree or in terms the applicable provisions of
 24

B.N.S.S including that under Section 431 of Cr.P.C. (now 471 of B.N.S.S.) if so
provided in the compromise. In the event of default of a compromise arrived
at before the Lok-Adalath, this court or trial Court can on an application made
by the Complainant set-aside the compromise arrived at before the Lok-
Adalath, restore the complaint on its file and proceed with the complaint or
enforce the compromise as per the terms of the compromise by invoking the
procedure under section 431 of Cr.P.C. (now section 471 of B.N.S.S.).

What is the course available to the Court when the accused wants to
pay the cheque amount and compound the offence, but, complainant
is not willing to compound?
Offences under section 138 of the Act are primarily a civil wrong.
Burden of proof is on the accused in view of presumption under Section 139
but the standard of such proof is “preponderance of probabilities”. The same
has to be normally tried summarily as per provisions of summary trial under
B.N.S.S but with such variation as may be appropriate to proceedings under
Chapter XVII of the Act. Thus read, principle of Section 258 Cr.P.C. (now 281
of B.N.S.S.) will apply and the court can close the proceedings and discharge
the accused on satisfaction that the cheque amount with assessed costs and
interest is paid and if there is no reason to proceed with the punitive aspect.
The object of the provision being primarily compensatory, punitive element
being mainly with the object of enforcing the compensatory element,
compounding at the initial stage has to be encouraged but is not debarred at
later stage subject to appropriate compensation as may be found acceptable
to the parties or the court. Though compounding requires consent of both
parties, even in absence of such consent, the court, in the interests of justice,
on being satisfied that the complainant has been duly compensated, can in its
discretion close the proceedings and discharge the accused. (Paras 18.1, 18.2
and 18.3) Meters and Instruments Private Ltd., and another vs.
Kanchan Mehta – (2018) 1 SCC 560. Above decision has been followed in
subsequent decision in the case of Gulshan Dhall And Another Vs Sasrbit
Singh and another – (2019)11 SCC 671. As far as closing of case under
section 258 is concerned, the view taken in Meters and instruments case
has been overruled in the case of Expeditious Trial of cases under section
 25

138 NI Act, Suo Moto writ petition (Crl) 2 of 202 reported in -2021 SCC
online SC 325.

What is the effect of compounding or Compromising the case?

Once the matter is compromised, then, it must end in acquittal of the
accused. There is no question of granting installments and acquitting the
accused. Refer the decision reported in K. J. B. L. Rama Reddy v.
Annapurna Seeds 2005 (10) SCC 632, and (2005)12 SCC 234- Cochin
Hotels Co. Pvt Ltd Vs Kairali Granites & Ors.
Criminal proceedings are not barred due to pendency of parallel civil
case. Relevant decision is AIR 2000 SC 1869- Medchi Chemicals &
Pharma (P) Ltd. Vs. Biological E. Ltd. Even if the suit is decreed,
continuation of criminal proceedings is not an abuse of process of Court.

*****