A company holding a dishonoured cheque: the section 138 timeline, the forum and the interim money

A company that is paid by cheque and finds it returned unpaid has a criminal complaint under section 138 of the Negotiable Instruments Act, 1881 only if four steps are taken in order: presentation of the cheque within its validity, a written demand within 30 days of the bank's return information, a 15 day wait for payment, and a complaint within one month after that wait ends. Where the cheque goes in through the payee's account, the complaint is tried where the payee's bank branch maintaining that account is, the drawer company and its directors in charge answer under section 141, the court may order interim compensation of up to 20 per cent of the cheque under section 143A, and in the drawer's appeal against conviction the appellate court may order a deposit of at least 20 per cent of the fine or compensation under section 148.

How do the four clocks run?

The four steps are also summarised on the money recovery practice page. This note adds the worked timeline, the company's position under section 141 and the deposit arithmetic.

Section 138 makes it an offence when a cheque drawn on an account, for the discharge of a debt or other liability, is returned unpaid because the money in the account is insufficient or exceeds the arrangement with the bank. The penalty is imprisonment up to two years, a fine up to twice the amount of the cheque, or both. The proviso then says that nothing in the section applies unless three conditions are met, and section 142(1)(b) adds a fourth, the time for the complaint.

The first is presentation. The cheque must 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". By a circular of 4 November 2011 the Reserve Bank of India directed banks, from 1 April 2012, not to pay a cheque presented more than three months after its date. The three months is then the earlier limit.

The second is the demand. The payee or holder in due course must give the drawer a notice in writing "within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid".

The third is the drawer's fifteen days from receipt of the notice to pay "the said amount of money".

The fourth is the complaint. Under section 142(1)(b) it must be made "within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138", that is, when the drawer fails to pay within the fifteen days. The proviso to that clause lets the court take cognizance "after the prescribed period" if the complainant satisfies it of "sufficient cause". That condonation reaches only the complaint; the text allows no excuse for a late presentation or notice.

A cheque still within its validity can be presented again, and in M.S.R. Leathers v. S. Palaniappan (AIR 2013 SC (Cri) 490, 26 September 2012) the Supreme Court accepted a fresh cause of action on each dishonour, if each notice and complaint keeps to the timings.

What does an illustrative timeline look like?

An illustration. The company, the drawer, the amounts and the dates are hypothetical. The cheque is for INR 50,00,000, dated 1 July 2026, drawn on a Mumbai branch of the drawer's bank, and deposited by the payee company in its account at a Bengaluru branch.

Step                                              Date or limit
Cheque dated                                      1 July 2026
Last day to present (3 months, cautious count)    30 September 2026
Presented 20 July, return information received    22 July 2026
Last day for notice (30 days from 22 July)        21 August 2026
Notice sent 4 August, received                    6 August 2026
Cause of action arises (fifteen days over)        22 August 2026
Complaint due (one month, 22 August excluded)     22 September 2026
Complaint filed                                   10 September 2026
After 22 September: cognizance only on sufficient cause

The fifteen days run from receipt of the notice, here 6 August. The day the cause of action arises is excluded in counting the month (Econ Antri Ltd. v. Rom Industries Ltd., AIR 2013 SC 3283, 26 August 2013).

Where is the complaint filed?

In Dashrath Rupsingh Rathod v. State of Maharashtra ((2014) 9 SCC 129, 1 August 2014) the Supreme Court held that the court where the drawee bank is has jurisdiction. The Negotiable Instruments (Amendment) Act, 2015, with effect from 15 June 2015, inserted section 142(2) to reverse that.

Under section 142(2) the offence is tried only by the court within whose local jurisdiction:

• if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course maintains the account is situated; or
• if the cheque is presented for payment otherwise than through an account, the branch of the drawee bank where the drawer maintains the account is situated.

Where the payee drops the cheque at any branch of its bank, the Explanation to clause (a) treats it as "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". In the illustration the court is the one at the Bengaluru account branch, not one in Mumbai.

Under section 142A, once a complaint is pending in the court that has jurisdiction under section 142(2), all later complaints under section 138 by the same payee or holder in due course against the same drawer "shall be filed before the same court", wherever those cheques were presented.

Who answers when the drawer is a company?

Section 141(1) provides that where the offender is a company, "every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company", is deemed guilty. A person escapes by proving lack of knowledge or all due diligence to prevent the offence. A government nominee director is excluded by the second proviso.

Section 141(2) separately reaches any director, manager, secretary or other officer where the offence is proved to be committed with consent or connivance, or to be attributable to neglect, on his part. The Explanation makes "company" include a firm, and "director" a partner.

Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd. ((2012) 5 SCC 661, 27 April 2012) held that the company must itself be arraigned as an accused before its directors can be prosecuted under section 141. Pooja Ravinder Devidasani v. State of Maharashtra (AIR 2015 SC 675, 17 December 2014) held that holding the office of director does not by itself make a person one in charge of the business, so a complaint has to say how the person was responsible.

What happens in the trial, and what are the presumptions?

Section 143 requires offences under this Chapter to be tried by a Metropolitan Magistrate or a Judicial Magistrate of the first class, and applies the summary trial provisions. The Act's text on India Code still names sections 262 to 265 of the Code of Criminal Procedure, 1973, whose successors in the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), in force from 1 July 2024, are sections 285 to 288. Section 8(1) of the General Clauses Act, 1897 reads the old references as references to these.

BNSS section 285(2) limits a summary trial to three months of imprisonment, but the first proviso to section 143 of the Act lets the Magistrate pass up to one year on a conviction in a summary trial under the Act. The second proviso lets the Magistrate move to a regular trial, recalling witnesses, where a longer sentence may be needed. Section 143(3) directs an endeavour to conclude within six months.

Several provisions shorten the proof. Section 145 lets the complainant's evidence be given on affidavit. Section 146 makes the bank's slip or memo, with its official mark of dishonour, the basis for presuming dishonour "unless and until such fact is disproved". Sections 118 and 139 presume, until the contrary is proved, that the cheque was drawn for consideration and received for a debt or liability. Section 140 bars the defence of not expecting dishonour.

How do interim compensation and the appeal deposit work?

Section 143A, inserted from 1 September 2018, lets the court trying the case "order the drawer of the cheque to pay interim compensation to the complainant". The order may be made in a summary trial or summons case when the drawer pleads not guilty, and in any other case upon framing of charge. The amount "shall not exceed twenty per cent" of the cheque. It is payable within sixty days of the order, extendable by up to thirty days on sufficient cause shown by the drawer. It is recoverable as a fine, under BNSS section 461 (old section 421). On acquittal the complainant repays it with interest at the bank rate published by the Reserve Bank, within sixty days, with the same thirty day extension. Under section 143A(6) the later fine or compensation is reduced by what was paid. The Supreme Court has held the power discretionary, to be exercised on a prima facie view of the complaint and the defence, with brief reasons (Rakesh Ranjan Shrivastava v. State of Jharkhand, 2024 INSC 205, 15 March 2024).

Section 148 applies after conviction. In the drawer's appeal the appellate court "may order" a deposit of "a minimum of twenty per cent" of the fine or compensation awarded by the trial court, in addition to interim compensation already paid. It is due within sixty days, extendable by thirty, and may be released to the complainant during the appeal, to be repaid with bank rate interest if the appeal succeeds.

An illustration (hypothetical). For the INR 50,00,000 cheque:

Interim compensation, ceiling: 20 per cent of INR 50,00,000      INR 10,00,000
Not guilty plea and order                                        15 January 2027
Payment due, 60 days                                             16 March 2027
Longest extension, 30 days more                                  15 April 2027

Maximum fine, twice the cheque                                   INR 1,00,00,000
Compensation awarded on conviction (cheque plus interest)        INR 62,00,000
  Appeal deposit, 20 per cent of INR 62,00,000                   INR 12,40,000
  Interim sum paid, on top                                       INR 10,00,000
  Most the complainant could hold                                INR 22,40,000

On acquittal the complainant repays both sums with bank rate interest.

Can the case be compounded?

Section 147 makes every offence under the Act compoundable, "notwithstanding anything contained" in the Code of Criminal Procedure, 1973, so settlement can end the complaint. In Damodar S. Prabhu v. Sayed Babalal H. ((2010) 5 SCC 663, 3 May 2010) the Supreme Court set graded costs for compounding, rising with how late in the proceedings it is done.

What remains unsettled?

Whether the 20 per cent under section 148 is taken on the amount awarded or on the amount left after section 143A(6) reduces it. In the illustration, the first reading gives INR 12,40,000 and the second INR 10,40,000.