Sections 138 and 143A of Negotiable Instruments Act 1881: Strengthening credibility of cheque transactions

The Negotiable Instruments Act, 1881 (NI Act) is the bedrock of commercial and financial law in India, governing instruments such as promissory notes, bills of exchange, and cheques. Over the years, cheque transactions have become a fundamental component of business and personal dealings. However, the rising number of cheque dishonour cases, commonly referred to as “cheque bounce cases,” has posed significant challenges to the judicial system.

To preserve the sanctity of cheque-based transactions and ensure accountability, Sections 138 and 143A of the NI Act play a crucial role. While Section 138 defines the offence of cheque dishonour and lays down the conditions and penalties, Section 143A, introduced through the Negotiable Instruments (Amendment) Act, 2018, empowers courts to grant interim compensation to the complainant during the pendency of the trial.

Section 138 of the Negotiable Instruments Act, 1881 penalizes the dishonour of a cheque when it is returned unpaid by the bank due to insufficient funds or when it exceeds the amount arranged with the bank. This provision ensures trust in financial transactions and upholds the credibility of cheques as a mode of payment.

For an offence under Section 138 to be established, the following conditions must be satisfied:

1. Legally Enforceable Debt or Liability – The cheque must have been issued for the discharge of a legally enforceable debt or other liability.

2. Timely Presentation – The cheque must be presented to the bank within three months from the date on which it is drawn.

3. Return of Cheque Unpaid – The cheque must be returned unpaid by the bank due to:

• Insufficient funds,

• Exceeding the arrangement with the bank, or

• Any other reason indicating non-payment.

4. Collection of Return Memo – The payee must obtain the cheque return memo from the concerned bank.

5. Legal Notice – A legal notice demanding payment must be issued by the payee to the drawer within 30 days of receiving the cheque return memo.

6. Failure to Make Payment – If the drawer fails to make payment within 15 days of receiving the notice, the offence is deemed complete.

7. Filing of Complaint – Thereafter, the complainant can file a case under Section 138 before the competent court.

The territorial jurisdiction for a complaint under Section 138 lies with the court within whose jurisdiction the payee’s bank—the bank where the cheque was presented for collection—is situated.

Upon conviction, the court may impose:

• Imprisonment for up to two years, or

• Fine up to twice the cheque amount, or

• Both.

Given the huge pendency of cheque bounce cases and the delays in obtaining relief, the Negotiable Instruments (Amendment) Act, 2018 introduced Section 143A. This provision empowers courts to order interim compensation to the complainant during the pendency of trial, providing financial relief and promoting speedy justice. It applies only to cases filed after 2018.

The court may direct the drawer (accused) to pay interim compensation in either of the following situations:

1. When the accused pleads not guilty to the offence; or

2. When the charges are framed by the court.

The interim compensation may be up to 20% of the cheque amount, payable within 60 days, extendable by another 30 days for sufficient cause.

If the accused is later acquitted, Section 143A(4) mandates that the complainant must refund the interim compensation, along with interest at the RBI’s bank rate, within 60 days (extendable by 30 days). The recovery of the amount can be enforced under Section 421 of the Code of Criminal Procedure, 1973, as if it were a fine.

The introduction of Section 143A serves several important purposes:

1. Provides Immediate Relief – Offers partial financial relief to the complainant during trial.

2. Discourages Frivolous Defences – The potential financial burden prompts accused persons to approach proceedings more responsibly.

3. Encourages Settlements – Interim compensation often facilitates early and amicable settlements.

4. Promotes Judicial Efficiency – Reduces unnecessary delays and adjournments, expediting the process.

Section 143A represents a progressive shift towards ensuring fair and efficient adjudication in cheque dishonour cases. It balances the interests of both parties—granting provisional relief to complainants while safeguarding the rights of accused individuals through refund provisions in case of acquittal. The effective and consistent implementation of this section by courts can significantly enhance confidence in cheque-based transactions and contribute to the integrity of India’s financial system.

Sections 138 and 143A of the Negotiable Instruments Act, 1881, collectively reinforce the credibility and reliability of cheques as a financial instrument. While Section 138 lays the foundation for penal consequences in cases of cheque dishonour, Section 143A provides an equitable mechanism for interim relief to the complainant. Together, they strike a crucial balance between deterrence, fairness, and judicial efficiency—ensuring that the law not only punishes defaulters but also upholds the trust essential for commercial transactions.

About the authors: Ritesh Raj is a Senior Associate of Gurinder & Partners.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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