Published On: August 29th 2025
Authored By: Nishi Joshi
Campus Law Centre, Faculty of Law, University of Delhi
Introduction
Cheques’ dishonour has been a grave issue in the Indian legal and business world for a very long time and continues to remain so. The rapid growth in the use of cheques as a safe instrument of payment necessitated the discouragement of any illegal activities. The enactment of Section 138 of the Negotiable Instruments Act, 1881, marked an important attempt to curb the abuse of negotiable instruments by turning a defaulting drawer’s action into a criminal offence, specifically when a cheque bounces because of insufficient funds or an account closure. The initiative was well received but the scope and applicability of this section have changed considerably as a result of court rulings, legislative changes, and recalibrations of the response to the recalcitrant backlog of cases.
On the contrary, the main issue about Section 138 is that this provision can be seen either as a crime with a civil character or as a true criminal offence. The law intends to protect the trust of people in the use of cheques and the reliability of the financial market. The law has to act as a protective shield for both parties, on one hand, it must guarantee the fulfilment of the contract, and on the other, it must provide the necessary safeguards to the accused. This article explores the confrontation between Section 138’s legal personality, the most prominent cases which have marked its direction, the latest judicial decisions, and the current implementation situation shown in number data.
Legal Features of Section 138: A Hybrid Liability, Civil at the Core but Armed with Criminal Sanctions.
Section 138 of the NI Act makes a provision to penalize a person who by writing a cheque made dishonour for the payment of money. When a cheque is not paid because of insufficient funds in the account, the drawer may be given a punishment of imprisonment for a term which may extend to two years, a fine of twice the amount of the cheque of both. However, this penal provision is limited to three conditions.
- A cheque must be presented not later than six months from the date of issue or during the validity period of the cheque.
- The payee is required to deliver a demand notice within 30 days after the return memo lands in their hands.
- The drawer must then default on payment within 15 days of receiving that notice.
Though it looks like a criminal charge on the face of it, many legal academics and judges have pointed out that the main intention is still compensatory — aimed at getting money to the holder, and not necessarily at punishing the drawer. Section 138 offence is a compoundable one, hence, many cases end up with a settlement.
In K. Bhaskaran v. Sankaran Vidhyan Balan [(1999) 7 SCC 510], the Supreme Court of India enlarged the territorial jurisdiction of Section 138 cases by stating that complaints could be lodged at five different places connected to the transaction. Unfortunately, this caused the problem of forum shopping and continuous harassment of the accused.[1]
This framework was changed in Dashrath Rupsingh Rathod v. State of Maharashtra [(2014) 9 SCC 129], when the Supreme Court of India held that the appropriate jurisdiction is the location of the drawee bank—specifically, the location where the cheque is dishonoured. This decision gave complainants only one clear place of complaint and thus, lessened the abuse of the law. It was a radical change in the way the territorial jurisdiction under Section 138 was interpreted.[2]
The Judicial Mind: Presumption, Rebuttal, and Onus
Section 139 of the Negotiable Instruments Act (NI Act) creates a statutory presumption in the interests of the holder who can, among other things, claim that the cheque was employed in the settlement of a debt, which is legally enforceable. Hence, it is the drawer who has to disprove the presumption.
Until the decision of Ajitsinh Chehuji Rathod v. State of Gujarat & Anr. (2024), the Supreme Court was on the same side as the interpretation of this burden. The court decided that the guilty person has to take an active role in proving evidence to disprove the presumption — they cannot expect the court to do the job for them. In this case, the accused asserted the signature on the cheque was not authentic without providing proof. The court decision was that the accused cannot keep proceedings on and on without justified reason, for example, by asking for an expert opinion. This reinforces judicial intent to curb procedural delays and prevent abuse of the legal system.[3]
Precedents Defining the Scope of Section 138
Section 138 of the Negotiable Instruments Act was recognized by the courts as the cheque bounce offence. In the following cases, the Supreme Court of India reiterated this proposition:
- Shri Ishar Alloy Steels Ltd. v. Jayaswals Neco Ltd. [(2001) 3 SCC 609]: The court explicitly stated that the cheque has to be presented to the drawee bank within the period of its validity; if this was not done, then the offence is not made out.[4]
- Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd. [(2009) 1 SCC 720]:The court emphasized that issuing a notice from a particular location only does not empower that court to act. In this settled view, the geography of the default, not the addresses of the parties or the issuing bank, dictates where legal action can be initiated..[5]
One can infer from these judgments that the issue of whether a Section 138 case process is a civil or a criminal one is not decided alone by the procedural nuances like jurisdiction, presumption, or notice issuance but all these factors are deeply involved in the deciding process.
Recent Legal Updates: Speedy Trials and Case Backlog
Law Minister Arjun Ram Meghwal has declared in Parliament on December 20, 2024, that there are 43 lakh cheque bounce cases pending in courts all over the country. The number of pending cases in Rajasthan is the highest (more than 6.4 lakh), followed by those in Maharashtra, Gujarat, Delhi, Uttar Pradesh, and West Bengal.[6]
The major part of the criminal courts’ backlog is made up of cheque bounce cases and traffic challans. The main reasons for the delay are the frequent adjournments, lack of mechanisms to track cases, and the absence of clear timeframes for cases. Although the government opened virtual courts for minor offences like traffic challans, Section 138 types of cases cannot be settled summarily since there is recording of evidence, cross-examination, and judicial discretion involved.[7]
Madras High Court’s Directives: Reforming Trial Procedures[8]
In March 2025, the Madras High Court, Justice N. Anand Venkatesh, passed orders for the speedy disposal of cases under the NI Act. The judge made it clear that the habit of taking several adjournments under the pretext of “check and call” should come to an end, and that complaints must be investigated within one week.
The judgment further stated that lower courts had not complied with various Supreme Court decisions instructing them to ensure speedy trials. The court has specified timelines for the issuance of summons, payment of interim compensation, and completion of the trial. Besides, the Registrar General was directed that this decision should be sent to all Judicial Magistrates through Principal District Judges so that compliance is strictly observed.
These measures reflect the judiciary’s acknowledgment that Section 138 cases have a deep-rooted influence on the system and ought to be treated with immediacy and precision.
Karnataka High Court: No Need to Hear Accused Before Cognizance[9]
In another landmark decision from the Karnataka High Court, it was affirmed by a Magistrate that the accused is not entitled to a hearing before the cognizance is taken for a Section 138 case. Justice Shivashankar Amarannavar stated that the NI Act is a special law and the provisions of this act take precedence over the general laws as per the BNSS (formerly CrPC).
The court has insisted that Section 138 proceedings are very peculiar — they can be thought of as civil liability disguised in the form of criminal procedure. The main concern is to give compensation to the victim and not to punish the offender. Thus, the interpretation has the aim of making the trials run smoothly by removing the unnecessary procedural requirements which delay the realization of justice.
The Jurisdiction Debate: Dashrath Rupsingh Rathod and Its Aftermath[10]
In the Supreme Court’s decision in the Dashrath Rupsingh Rathod case, it was established that a complaint under Section 138 should be filed only in the court where the drawee bank is situated, i.e., the place where the cheque was dishonoured. This is against the previous practice, wherein the aggrieved party could file cases at their own location — which would often lead to misuse and multiple cases being filed.
By ruling that Section 138 must not be used for harassment, the Court made it clear. This ruling has not only gone a long way in clarifying the jurisdiction issues but has also prevented people from engaging in unscrupulous practices and reduced procedural confusion. To cite an example, if a cheque is issued in Mumbai but dishonoured in Delhi, the complaint can only be filed in Delhi — the place of dishonour.
Example: Mr. A from Hyderabad issues a cheque to Mr. B from Lucknow. Mr. B deposits it in Indore, and the cheque bounces. Post this ruling, Indore is the only place where a complaint can be initiated — streamlining the territorial aspect of the offence.
Practical Challenges in Section 138 Prosecutions
Although these legal explanations, Section 138 procedures are still facing practical problems:
- Delay in disposal: The duration for a typical trial is still years, in spite of time limits given in the law.
- Misuse: Some complainants may misuse the provision to get the money back by threatening or by filing multiple complaints in different places.
- Clogged courts: A single Judicial Magistrate may be handling hundreds of Section 138 cases, which leads to a loss of judicial efficiency.
These problems have raised the need for systematic case management, such as digitization, automated cause lists, and legal reforms like the allowance of summary trial procedures.
Sociological Impact and the “Civil-Criminal” Dichotomy
On the grounds of the matter, many jurists contend that Section 138 empowers the implementation of civil obligations — i.e. money repayment — by way of criminal penalties. The menace of being put in jail is the main factor that induces the parties to reach an agreement, even if the case is not well-grounded.
Justice Amarannavar figuratively compared it to “a civil sheep in a criminal wolf’s clothing,” indicating the main intention is the compensation of the victim, rather than public justice. Consequently, this opinion pool has led to the issue of whether the cheque bounce should be decriminalized or at least reclassified under the realm of quasi-criminal jurisprudence.
Relevant Legal Provisions and Supporting Statutes
Aside from Section 138 and 142 of the NI Act, the next CrPC (now BNSS) sections are mostly cited:
- Section 177-179 CrPC: Describe the places of jurisdiction, where an offence can be investigated.
- Section 20 CrPC: Deals with trial jurisdiction.
- Section 391 CrPC: Allows the appellate court to take further evidence if necessary.
Understanding these provisions helps assess the technical and procedural backdrop of Section 138 cases, especially during appeals or disputes over jurisdiction.
Conclusion: A Law in Transition
The journey of Section 138 of the NI Act showcases the relationship between economic efficiency and legal due process. It is true that the law was introduced with the aim of encouraging the use of the cheque system, but there has been overcriminalization and sluggishness in the system which have gradually eroded the good features of this law. Changes in the courts system, together with those by Madras and Karnataka High Courts and the Supreme Court’s decision in Ajitsinh Chehuji Rathod, come to the rescue of the legal system’s reputation. Thus, enabling the accused to prove their guilt and resolving jurisdictional issues, the courts are definitely steering the path of cheque dishonour seriousness.
With 43 lakh cases still pending, there’s a long road ahead. The law needs not just procedural reform, but also a cultural shift — where cheques are honoured as solemn promises and legal recourse is both swift and fair.
References
[1] Sucheta, ‘Bhaskaran case on dishonour of cheque stands overruled’ SCC Online (8 August 2014) https://www.scconline.com/blog/post/2014/08/08/bhaskaran-case-on-dishonour-of-cheque-stands-overruled/
[2] Amay Bajaj, ‘Cheque Bouncing – Recent Legal Change’ Indian National Bar Association https://www.indianbarassociation.org/cheque-bouncing-recent-legal-change/
[3] ‘Latest Supreme Court Judgement – Cheque Bounce Case’ AM LEGAL SERVICES https://amlegal.in/latest-supreme-court-judgement-on-cheque-bounce-case/
[4] Amay Bajaj, ‘Cheque Bouncing – Recent Legal Change’ Indian National Bar Association https://www.indianbarassociation.org/cheque-bouncing-recent-legal-change/
[5] Ibid
[6] ’43 lakh cheque-bounce cases pending, Rajasthan tops list’ The Times Of India (28 December 2024) https://timesofindia.indiatimes.com/india/43-lakh-cheque-bounce-cases-pending-rajasthan-tops-list/articleshow/116725068.cms
[7] Ibid
[8] Mohamed Imranullah S., ‘Madras High Court issues directions for speedy disposal of cheque bounce cases’ The Hindu (13 February 2025) https://www.thehindu.com/news/national/tamil-nadu/madras-high-court-issues-directions-for-speedy-disposal-of-cheque-bounce-cases/article69214205.ece
[9] Ambarish B, ‘No need to hear accused before taking cognisance in cheque bounce cases: Karnataka High Court’ Deccan Herald (10 May 2025) https://www.deccanherald.com/india/karnataka/no-need-to-hear-accused-before-taking-cognisance-in-cheque-bounce-cases-karnataka-high-court-3534823
[10] Amay Bajaj, ‘Cheque Bouncing – Recent Legal Change’ Indian National Bar Association https://www.indianbarassociation.org/cheque-bouncing-recent-legal-change/
