Cheque bounce cases are one of the most common financial disputes in India. Whether you’re a business owner, freelancer, landlord, or simply someone who accepted a post-dated cheque, a dishonoured cheque can feel like a serious betrayal. Fortunately, Indian law provides clear recourse under the Negotiable Instruments Act, 1881 (NI Act)—especially under Section 138.
This blog breaks down what happens when a cheque bounces, what your legal rights are, and how you can take action.
1. What is a Cheque Bounce?
A cheque is said to have “bounced” when the bank refuses to honour it and returns it unpaid. Common reasons include:
- Insufficient funds in the account
- Signature mismatch
- Account closed
- Stop payment instructions
- Exceeding overdraft limit
The most serious implication arises when the cheque is returned due to insufficient funds, which can be prosecuted under Section 138 of the NI Act.
2. Legal Rights Under Section 138 of the NI Act
Essentials for Action under Section 138:
To proceed legally, the following conditions must be met:
- The cheque was issued to discharge a legally enforceable debt or liability.
- The cheque was presented within 3 months (or validity period) from the date of issue.
- The bank returned the cheque due to insufficient funds or similar reasons.
- The payee issued a written demand notice within 30 days of receiving the return memo.
- The drawer failed to pay the amount within 15 days of receiving the notice.
If these conditions are fulfilled, you can initiate a criminal complaint.
3. Step-by-Step Legal Process
Step 1: Present the Cheque
Deposit the cheque within its validity (generally 3 months). If it bounces, the bank will issue a cheque return memo stating the reason.
Step 2: Send a Legal Demand Notice
You must send a legal notice to the issuer (drawer) of the cheque within 30 days of receiving the return memo. The notice should:
- Mention the cheque details
- State the amount due
- Demand payment within 15 days
Step 3: Wait for Payment Window
If the drawer pays within 15 days, the matter ends. If not, you can proceed legally.
Step 4: File a Complaint in Court
- File a criminal complaint under Section 138 of the NI Act.
- The case must be filed within 1 month from the expiry of the 15-day period post notice.
- The complaint is to be filed in a Magistrate’s Court where the bank (of payee) is located.
Step 5: Court Proceedings
The drawer will be summoned to court. If found guilty, the court can:
- Impose a fine up to twice the cheque amount
- Award imprisonment up to 2 years
- Or both
You can also simultaneously file a civil suit for recovery of the amount.
4. Common Defences by the Drawer
- The cheque was not issued for a legal liability
- The cheque was given as a gift or loan security
- Signature or amount was altered
- Notice was not properly served
Courts will evaluate the evidence, documents, and witness testimonies.
5. Tips for the Payee (Receiver of Cheque)
- Always maintain written proof of the transaction
- Preserve the bounced cheque and return memo
- Send legal notice via registered post or courier with tracking
- Keep all communication records
6. Tips for the Drawer (Cheque Issuer)
- Avoid issuing cheques without sufficient funds
- Communicate in writing if you’re unable to honour the cheque
- Try to settle the matter during the notice period
- Avoid ignoring court summons—non-appearance may lead to a warrant
7. Alternate Options: Settlement and Mediation
Many courts encourage settlement via Lok Adalats or mediation centres to reduce backlog. You can:
- Compromise and close the matter
- Agree to part-payment or instalments
This route is less stressful and more time-efficient.
Final Thoughts
A bounced cheque is more than a financial nuisance—it’s a legal issue that can result in criminal prosecution. Thankfully, Indian law provides a structured remedy through Section 138 of the NI Act. As a payee, don’t delay action. As a drawer, avoid issuing cheques irresponsibly.
Timely action, legal awareness, and documentation are your best allies in cheque bounce cases.
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