Supreme Court Cracks Down on Cheque Bounce Case Backlog: New Guidelines Issued
- rit arora
- Oct 4
- 9 min read
By Lex Horizon
On 25 September 2025, the Supreme Court in Sanjabij Tari v. Kishore S. Borcar & Anr. (2025 INSC 1158) not only allowed the appeal but also reaffirmed and clarified important legal principles under the Negotiable Instruments Act:
i) Purpose of Chapter XVII
The Court reiterated that Chapter XVII was enacted to restore the credibility of cheques as a substitute for cash, promote financial discipline, and ensure efficient resolution of disputes. Criminalising dishonour of cheques deters irresponsible practices and avoids long-drawn civil suits.
ii) Presumptions under Sections 118 and 139
Once execution of a cheque is admitted, the Court held, there arises a presumption that it was issued for consideration and in discharge of a legally enforceable debt or liability.
iii) Overruling of Krishna Janardhan Bhat
The contrary observations in Krishna Janardhan Bhat v. Dattatraya G. Hegde (2008) were set aside by the three-Judge Bench in Rangappa v. Sri Mohan (2010).
iv) Nature of Presumption
The presumption under Section 139 is rebuttable. However, the initial burden lies on the accused/drawer to prove that the cheque was not issued towards any debt or liability (Bir Singh v. Mukesh Kumar, 2019).
v) Cash Transactions & Section 269SS IT Act
The Kerala High Court’s view in P.C. Hari v. Shine Varghese (2025) that cash loans above ₹20,000 are not “legally enforceable debts” was expressly set aside. The Supreme Court clarified that breach of Section 269SS IT Act only invites penalty under Section 271D IT Act — it does not invalidate the underlying transaction or negate the NI Act presumptions.
vi) Civil Recovery Approach Rejected
The Court expressed concern that some courts were wrongly treating Section 138 proceedings as civil recovery suits, compelling complainants to prove antecedent liability. This approach, the Court held, undermines the legislative mandate and erodes public trust in cheques.
vii) Mode of Rebuttal
As reaffirmed in Rajaram v. Maruthachalam (2023), an accused may rebut presumptions by examining complainant’s bank or income tax officials, but absent such evidence, mere allegations of financial incapacity are insufficient.
viii) Revisional Jurisdiction
The Court reiterated that in revisional jurisdiction, High Courts cannot disturb concurrent factual findings unless there is perversity or jurisdictional error (Bir Singh; Southern Sales & Services v. Sauermilch Design, 2008).
ix) Reply to Statutory Notice
Failure to reply to a statutory notice under Section 138 permits an inference in favour of the complainant’s version. This principle, seen in Tedhi Singh v. Narayan Dass Mahant (2022) and MMTC Ltd. v. Medchl Chemicals (2002), applied squarely to the present case — the accused’s silence made his defence of financial incapacity appear as an afterthought.
x) Offence under Section 138 NI Act is quasi-criminal in nature and compoundable (Damodar S. Prabhu)
In Gian Chand Garg v. Harpal Singh (Criminal Appeal No. 3789/2025, decided on 11 August 2025), a co-ordinate Bench of the Supreme Court set aside concurrent convictions on the ground that proceedings under Section 138 are essentially civil in character, allowing parties to voluntarily compromise. The Court therefore observed that not only can voluntary compromise bring 138 NI Act proceedings to an end, but accused persons may also be granted the benefit of the Probation of Offenders Act, 1958 [see Chellammal v. State, 2025 SCC OnLine SC 870]. Contrary observations by the Kerala High Court in M.V. Nalinakshan v. M. Rameshan (2009 All MR (Cri) Journal 273) were expressly set aside.
MASSIVE BACKLOG OF CHEQUE DISHONOR CASES
The Court took judicial notice that despite repeated directions in Indian Bank Association v. Union of India (2014), Damodar S. Prabhu v. Sayed Babalal H. (2010), and In Re: Expeditious Trial of cases under Section 138 NI Act (2021), the pendency of cheque dishonour cases in district courts of major metropolitan cities remains staggeringly high. Further, it observed that the service of summons remains the main reason for the delay in the proceedings. To ensure payment of money and promote credibility of cheques as a trustworthy substitute for cash payment, the Court issued the following directions:-
"A. In all cases filed under Section 138 of the NI Act, service of summons shall not be confined through prescribed usual modes but shall also be issued dasti i.e. summons shall be served upon the accused by the complainant in addition. This direction is necessary as a large number of Section 138 cases under the NI Act are filed in the metropolitan cities by financial institutions, by virtue of Section 142(2) of the NI Act, against accused who may not be necessarily residing within the territorial jurisdiction of the Court where the complaint has been filed. The Trial Courts shall further resort to service of summons by electronic means in terms of the applicable Notifications/Rules, if any, framed under subSections 1 and 2 of Section 64 and under Clause (i) of Section 530 and other provisions of the Bhartiya Nagarik Suraksha Sanhita, 2023 (for short ‘BNSS, 2023’) like Delhi BNSS (Service of Summons and Warrants) Rules, 2025. For this purpose, the complainant shall, at the time of filing the complaint, provide the requisite particulars including e-mail address, mobile number and/or WhatsApp number/messaging application details of the accused, duly supported by an affidavit verifying that the said particulars pertain to the accused/respondent.
B. The complainant shall file an affidavit of service before the Court. In the event such affidavit is found to be false, the Court shall be at liberty to take appropriate action against the complainant in accordance with law.
C. In order to facilitate expeditious settlement of cases under Section 138 of the NI Act, the Principal District and Sessions Judge of each District Court shall create and operationalise dedicated online payment facilities through secure QR codes or UPI links. The summons shall expressly mention that the Respondent/Accused has the option to make payment of the cheque amount at the initial stage itself, directly through the said online link. The complainant shall also be informed of such payment and upon confirmation of receipt, appropriate orders regarding release of such money and compounding/closure of proceedings under Section 147 of the NI Act and/or Section 255 of Cr.P.C./278 BNSS, 2023 may be passed by the Court in accordance with law. This measure shall promote settlement at the threshold stage and/or ensure speedy disposal of cases.
D. Each and every complaint under Section 138 of the NI Act shall contain a synopsis in the following format which shall be filed immediately after the index (at the top of the file) i.e. prior to the formal complaint:-
Complaint under Section 138 of the Negotiable Instruments Act, 1881
I. Particulars of the Parties
(i) Complainant: ____________
(ii) Accused: ____________ (In case where the accused is a company or a firm then Registered Address, Name of the Managing Director/Partner, Name of the signatory, Name of the persons vicariously liable)
II. Cheque Details
(i) Cheque No. ____________
(ii) Date: ____________
(iii) Amount: ____________
(iv) Drawn on Bank/Branch: ____________
(v) Account No.: ____________
III. Dishonour
(i) Date of Presentation: ____________
(ii) Date of Return/Dishonour Memo: ____________
(iii) Branch where cheque was dishonoured:_________
(iv) Reason for Dishonour: ____________
IV. Statutory Notice
(i) Date of Notice: ____________
(ii) Mode of Service: ____________
(iii) Date of Dispatch & Tracking No.: ____________
(iv) Proof of Delivery & date of delivery: ____________
(v) Whether served:____________________
(vi) If Not, reasons thereof:________________
(vii) Reply to the Legal Demand Notice, if any_______________
V. Cause of Action
(i) Date of accrual: ____________
(ii) Jurisdiction invoked under Section 142(2): ____________
(iii) Whether any other complaint under section 138 NI Act is pending between the same parties, If Yes, in which court and the date and year of the institution.
VI. Relief Sought
(i) Summoning of accused and trial under Section 138 NI Act__________
(ii) Whether Award of Interim compensation under Section 143A of NI Act sought _____
VII. Filed through:
Complainant/Authorized Representative”
E. Recently, the High Court of Karnataka in Ashok Vs. Fayaz Aahmad, 2025 SCC OnLine Kar 490 has taken the view that since NI Act is a special enactment, there is no need for the Magistrate to issue summons to the accused before taking cognizance (under Section 223 of BNSS) of complaints filed under Section 138 of NI Act. This Court is in agreement with the view taken by the High Court of Karnataka. Consequently, this Court directs that there shall be no requirement to issue summons to the accused in terms of Section 223 of BNSS i.e., at the pre-cognizance stage.
F. Since the object of Section 143 of the NI Act is quick disposal of the complaints under Section 138 by following the procedure prescribed for summary trial under the Code, this Court reiterates the direction of this Court in In Re: Expeditious Trial of cases under Section 138 of NI Act (supra) that the Trial Courts shall record cogent and sufficient reasons before converting a summary trial to summons trial. To facilitate this process, this Court clarifies that in view of the judgment of the Delhi High Court in Rajesh Agarwal vs. State and Anr., 2010 SCC OnLine Del 2511, the Trial Court shall be at liberty (at the initial post cognizance stage) to ask questions, it deems appropriate, under Section 251 Cr.P.C. / Section 274 BNSS, 2023 including the following questions:-
(i) Do you admit that the cheque belongs to your account? Yes/No
(ii) Do you admit that the signature on the cheque is yours? Yes/No
(iii) Did you issue/deliver this cheque to the complainant? Yes/No
(iv) Do you admit that you owed liability to the complainant at the time of issuance? Yes/No
(v) If you deny liability, state clearly the defence:
(a) Security cheque only;
(b) Loan repaid already;
(c) Cheque altered/misused;
(d) Other (specify).
(vi) Do you wish to compound the case at this stage? Yes/No
G. The Court shall record the responses to the questions in the ordersheet in the presence of the accused and his/her counsel and thereafter determine whether the case is fit to be tried summarily under Chapter XXI of the Cr.P.C. / Chapter XXII of the BNSS, 2023.
H. Wherever, the Trial Court deems it appropriate, it shall use its power to order payment of interim deposit as early as possible under Section 143A of the NI Act.
I. Since physical courtrooms create a conducive environment for direct and informal interactions encouraging early resolution, the High Courts shall ensure that after service of summons, the matters are placed before the physical Courts. Exemptions from personal appearances should be granted only when facts so warrant. It is clarified that prior to the service of summons the matters may be listed before the digital Courts.
J. Wherever cases under Section 138 of the NI Act are permitted to be heard and disposed of by evening courts, the High Courts should ensure that pecuniary limit of the cheque amount is realistic. For instance, in Delhi, the jurisdiction of the evening courts to hear and decide cases of cheque amount is not exceeding Rs.25,000/-. In the opinion of this Court, the said limit is too low. The High Courts should forthwith issue practice directions and set up realistic pecuniary benchmarks for evening Courts.
K. Each District and Sessions Judge in Delhi, Mumbai and Calcutta shall maintain a dedicated dashboard reflecting the pendency and progress of cases under Section 138 of the NI Act. The dashboard shall include, inter alia, details regarding total pendency, monthly disposal rates, percentage of cases settled/compounded, average number of adjournments per case and the stage-wise breakup of pending matters. The District and Sessions Judges in aforesaid jurisdictions shall conduct monthly reviews of the functioning of Magistrates handling NI Act matters. A consolidated quarterly report shall be forwarded to the High Court.
L. The Chief Justices of Delhi, Bombay and Calcutta are requested to form Committee on the Administrative side to monitor pendency and to ensure expeditious disposal of Section 138 of the NI Act cases. These Committees should meet at least once a month and explore the option of appointing experienced Magistrates to deal with Section 138 of the NI Act cases as well as promoting mediation, holding of Lok Adalats and other alternative dispute resolution mechanisms in Section 138 NI Act cases
"
COMPOUNDING OF OFFENCES -REVISED GUIDELINES
That the Supreme Court framed guidelines for compounding offences under the NI Act nearly fifteen years back in Damodar S. Prabhu. Since a very large number of cheque bouncing cases are still pending and interest rates have fallen in the last few years, the Supreme Court was of the view that it is time to ‘revisit and tweak the guidelines’ and Accordingly modified guidelines of compounding as under:-
"(a) If the accused pays the cheque amount before recording of his evidence (namely defence evidence), then the Trial Court may allow compounding of the offence without imposing any cost or penalty on the accused.
(b) If the accused makes the payment of the cheque amount post the recording of his evidence but prior to the pronouncement of judgment by the Trial Court, the Magistrate may allow compounding of the offence on payment of additional 5% of the cheque amount with the Legal Services Authority or such other Authority as the Court deems fit.
(c) Similarly, if the payment of cheque amount is made before the Sessions Court or a High Court in Revision or Appeal, such Court may compound the offence on the condition that the accused pays 7.5% of the cheque amount by way of costs.
(d) Finally, if the cheque amount is tendered before this Court, the figure would increase to 10% of the cheque amount."
The Court further observed that if the accused agrees to pay as per the prescribed guidelines, the parties may be encouraged to opt for compounding. However, if the complainant demands more than the cheque amount or full settlement of other dues, the Magistrate may advise the accused to plead guilty and consider relief under Section 255(2)/(3) CrPC, Section 278 BNSS, 2023, or the Probation of Offenders Act, 1958.
The Supreme Court directed that the High Courts and District Courts shall implement the aforesaid guidelines not later than 01st November, 2025.
With respect to the case at hand, the Hon'ble Court allowed the appeal and restored the orders of the Trial Court and the Sessions Court, and directed the accused to pay INR 7,50,000.00 in 15 equal monthly installments of INR 50,000.00 each.
Find the order here.
