In the world of financial transactions, cheques are a common and trusted mode of payment. However, when a cheque is dishonoured or “bounced,” it can lead to not just monetary loss but also legal complications. In India, cheque bounce is not merely a financial issue—it is a criminal offence under the law.
This article breaks down the legal rights and remedies available when a cheque bounce occurs and explains how you can safeguard yourself legally and financially.
What is Cheque Bounce?
A cheque bounce occurs when a bank refuses to honour a cheque. The most common reasons include:
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Insufficient funds in the drawer’s account
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Signature mismatch
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Stale or expired cheque
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Account closed
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Mutilated or overwritten cheque
When a cheque is bounced due to insufficient funds, it attracts penal provisions under the Negotiable Instruments Act, 1881, particularly Section 138.
Legal Framework: Section 138 of the NI Act
Section 138 of the Negotiable Instruments Act, 1881 deals specifically with the offence of cheque dishonour due to insufficient funds. It makes the drawer (the person who issued the cheque) liable for criminal prosecution if the cheque is dishonoured and legal conditions are fulfilled.
Steps to Take When a Cheque Bounces
✅ 1. Obtain a Cheque Return Memo
When the cheque bounces, the bank issues a “cheque return memo” stating the reason for dishonour. This is the first official document needed to initiate legal action.
✅ 2. Send a Legal Notice
The payee (person to whom the cheque was issued) must send a legal notice to the drawer within 30 days of receiving the return memo. The notice should demand the cheque amount and give the drawer 15 days to make payment.
✅ 3. File a Complaint
If the drawer fails to pay within 15 days, the payee can file a criminal complaint in court under Section 138, within 30 days after the lapse of the notice period.
Penalties for Cheque Bounce
Under Section 138, if found guilty, the drawer may face:
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Imprisonment of up to 2 years, or
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Monetary fine which may extend to twice the amount of the cheque, or
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Both
The court may also direct the drawer to compensate the payee in addition to the criminal penalty.
Defence Available to the Drawer
The accused drawer can present several legal defences, such as:
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Proving that no legally enforceable debt existed
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Demonstrating that the cheque was issued under coercion or fraud
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Showing payment was already made through other means
Civil Remedies Alongside Criminal Action
In addition to a criminal complaint, the payee can also file a civil suit for recovery of the cheque amount under Order XXXVII of the Civil Procedure Code. This allows the aggrieved party to seek compensation, interest, and legal costs.
Precautions to Avoid Cheque Bounce
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Always maintain sufficient balance in your account.
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Regularly update and verify your signature with the bank.
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Avoid issuing post-dated or expired cheques.
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Communicate with the payee in case of a financial issue to avoid legal escalation.
Conclusion: Stay Legally Aware & Financially Responsible
Cheque bounce cases can be disruptive, but Indian law provides a clear and structured legal path for recovery and justice. Whether you’re the issuer or the receiver of a cheque, understanding your rights, timelines, and legal responsibilities is key.