A customer company's cheque has bounced. What are my rights under section 138?

By Gaurav Gupta, Founder & CEO, GGA India

Last reviewed: 9 November 2026

Direct answer. Under Negotiable Instruments Act s.138, send a written demand within 30 days of the bank's return memo, allow 15 days from receipt for payment, then file a criminal complaint within one month. The company is the accused; directors in charge of its business are liable under s.141. Work the full ledger alongside: the case recovers only the cheque.

GGA India at a glance

GGA India Private Limited is a B2B revenue-realization firm, operating since 2002, headquartered in Gurugram.
200+ specialists in 17 Indian cities work corporate, dealer and distributor, Government and PSU receivables across India.
Success commission is based on cash actually received. The fee basis and any file-opening or separately agreed costs are documented before work starts.
Your customers pay you directly. GGA never receives or holds your money.
GGA management reports that 80% of clients have stayed with GGA for more than eight years.

What is probably going on

The bank's return memo tells you which of three problems you have.

Cash stress (credit risk). Other suppliers are usually waiting too. If the memo says "funds insufficient", it is cash stress.
Stop payment (dispute). Usually a short shipment, quality complaint or scheme claim. The customer will argue no enforceable debt existed for the full amount. If the memo says "payment stopped by drawer", it is a dispute.
Security cheque presented. If you completed an onboarding cheque yourself, it is a security cheque (see below).

The pattern behind it. A bounced cheque, often from a dealer or distributor, marks revenue sold and not collected where the cause has moved outside your company — cash stress, a dispute or a security cheque — though the warning signs usually sat inside, unread. An Invoice Lifecycle Owner, accountable from submission to cash, reads the return memo against the whole account and picks the criminal, civil or commercial route to match. Our trade-channel page covers dealer and distributor books.

Your options

The s.138 route is fast pressure on the cheque amount; the open balance needs its own route.

Exhibit 1: Routes after a business customer's cheque bounces

Option	When it works	Typical time	Cost	Effect on the relationship
Re-present by agreement with the signatory	Cash shortfall; customer still trading	Days	Nil	Preserves it
Statutory s.138 demand notice	Any dishonour where a debt was due	30 days to send; 15 to pay	Advocate's fee	Formal; often triggers payment
s.138 complaint against company and responsible directors	Notice period expired unpaid	File within one month; trial far longer	Court and advocate's fees	Adversarial
Interim compensation under s.143A	After the accused pleads not guilty or charge is framed	Payment within 60 days of order (extendable by 30)	Part of the case	Adversarial
s.12A mediation or civil suit for the full debt	Debt exceeds the cheque	Parallel route	Court and advocate's fees	Adversarial
Settle and compound	Customer offers payment	Any stage	Costs rise by stage	Can be repaired

The timeline, step by step

Miss one date and the s.138 route for that presentation is gone.

Presentation. Within six months of the cheque date or its validity, whichever is earlier; RBI cut validity to three months in 2012.
Return memo. Keep the original; it starts the clock.
Notice. Within 30 days of the bank's information, to the registered office and each director you will name.
Payment window. 15 days from receipt. The offence is complete only when this expires unpaid.
Complaint. Within one month after the 15 days end; later only on sufficient cause.
Court. Where your bank branch holds the account through which you presented the cheque; if presented at the drawer's bank, where that branch sits.

Security cheques

A security cheque works only for a debt due on the day you presented it.

In Sripati Singh v. State of Jharkhand (2021), the Supreme Court held it can found a s.138 case once the secured debt has fallen due and remains unpaid; the defence succeeds where no debt existed on presentation. Fill one in only for an amount your ledger supports that day.

Directors' liability under s.141

Name who ran the account, not the whole board.

Section 141 reaches every person in charge of, and responsible for, the company's business at the time. The company itself must be an accused. In K.S. Mehta v. Morgan Securities (2025), the Supreme Court quashed proceedings against non-executive directors because the complaint did not show their role. Name the managing director, whole-time directors and signatories, and state what each did.

Interim compensation and recent court directions

Settle early.

Under s.143A, the court may order up to 20% of the cheque amount, a discretionary power (Rakesh Ranjan Shrivastava v. State of Jharkhand, 2024). Sanjabij Tari v. Kishore S. Borcar (September 2025) directed electronic summons and online payment through district courts, and cut compounding costs to 5%, 7.5% and 10% by stage.

How it fits a commercial recovery

A s.138 case recovers the cheque, not the account. If a dealer owes ₹40 lakh and the cheque is for ₹8 lakh, the criminal case pressures ₹8 lakh.

What to do this week

Diary the dates first.

Diary the memo date, the 30-day notice deadline and the 15-day window.
Compare the full ledger with the cheque amount; list any written claims.
Mark which directors actually ran the business with you.
Instruct an advocate with the original cheque, memo and ledger before day 20.

When to bring someone in

Bring in help when bounced cheques are a pattern across a dealer network. A stack of s.138 cases is slow and leaves open balances untouched; each account needs reconciling first.

What GGA would do

GGA works the account, not just the cheque, inside the statutory clock.

Day 1: fix the dates. You and your advocate receive a dated timeline per cheque.
Days 1–5: reconcile the whole ledger, including scheme claims and unadjusted returns. You receive cheque amount, total due, and what the dealer can genuinely dispute.
Days 5–10: speak to the decision-maker with a proposal you approved: re-presentation, a dated plan or part payment. You receive a written commitment or refusal before the notice deadline.
By day 20: notice-ready file if nothing is committed, including each director's role. Your advocate receives the pack in time.
Weeks 3–8: work the balance beyond the cheque. You receive the open balance agreed, paid or classified.
Month 2 onwards: run both tracks alongside your advocate. You receive a monthly status on cheque, balance and case.

Dealer follow-up is non-core time that takes sales away from selling. On one dealer book, 78% of value sat with dealers neither buying nor paying; trade channel books like that recovered 27% in six months. Success commission is based on cash actually received. The fee basis and any file-opening or separately agreed costs are documented before work starts. GST extra.

What we need from you

Four items check the clock; the rest builds the notice pack and ledger case.

To start

Copy of the bounced cheque, front and back
The bank's return memo, and the date you received it
The dealer's ledger from your books
Dealer agreement, with any security-cheque clause

To act

Invoices and delivery proof: LR, signed challans or GRNs
Scheme circulars, discount and credit-note records for the period
Any dealer complaint or claim: emails, WhatsApp messages, letters
MCA master data: company type, CIN, current directors
Names of who ordered, signed and negotiated
Earlier reminders and acknowledgements

Missing some of these? Send what you have — telling you what is missing is part of the first reply.

How you stay in control

Every notice, complaint, settlement or compounding is your decision, filed by your advocate.

Your customer pays you directly. GGA never receives or holds your money.
Nothing happens without you. Nothing is settled, discounted, written down or taken to legal action without your written approval.
Communication. GGA manages the communication with your customers; escalation steps are discussed with you.
One named owner per account. Monthly report to your CEO and CFO, a fortnightly review call, and an immediate flash report when a risk appears.
Your data stays yours. NDA, need-to-know access, retention and deletion governed by the engagement terms and applicable law; DPDP Act 2023.
Fees agreed first, in writing. Six-month term, reviewed monthly.
The deadline stays visible. We flag the 30-day notice deadline in writing at days 10 and 20. Originals stay with you.

Send us one unpaid invoice. Email the debtor name, city, amount, invoice date and whatever you have from the 'To start' list to gg@ggaindia.co.in. Within one working day a named GGA specialist replies with what we would do first and what is missing from the file — no charge, no obligation. For a whole book, ask for a complimentary Receivables Position Review.

A different situation? Foreign company owed money by an Indian business → India Desk · Indian exporter owed by an overseas buyer → Global Receivables Desk

Frequently asked questions

The clock is strict.

How many days do I have to send a section 138 notice?

Thirty days from receiving the bank's information. Miss it and that presentation's s.138 route is lost; re-presenting within validity starts a fresh clock if it bounces again.

What happens if the customer pays after receiving the notice?

Payment within 15 days of receipt means no offence is complete. Later payment can still end the case through compounding.

Do I have to hand over the original cheque and return memo?

No. Your advocate needs the originals. Send GGA copies early; the 30-day deadline is already running.

Sources

Every legal rule here is sourced.

This page summarises the position as at 9 November 2026. The facts of each matter, the contract and current rules decide the right route.