Cheque bounce is a common financial offense that can have serious legal implications. Whether you’re a business owner, freelancer, or individual, receiving a bounced cheque can disrupt your cash flow and lead to significant losses. Fortunately, Indian law provides clear legal remedies for cheque bounce and recovery under the Negotiable Instruments Act, 1881.
In this blog, we’ll explain what cheque bounce means, why it happens, the legal process for recovery, and how to take timely action.
✅ What is Cheque Bounce?
A cheque bounce (or dishonour of cheque) occurs when a bank refuses to clear a cheque due to insufficient funds, signature mismatch, or other technical reasons.
Common reasons include:
- Insufficient balance in the drawer’s account
- Account closed
- Signature mismatch
- Cheque expired (stale cheque)
- Overwriting or incorrect details
Under Section 138 of the Negotiable Instruments Act, cheque bounce is treated as a criminal offence in India.
📑 Legal Elements of a Cheque Bounce Case
To proceed legally under Section 138, the following conditions must be met:
- The cheque must be drawn for the discharge of a legally enforceable debt or liability.
- The cheque must be presented within its validity period (usually 3 months from the date).
- The bank must return the cheque with a memo stating the reason for dishonour.
- A legal notice must be issued to the drawer within 30 days of cheque bounce.
- The drawer must fail to make payment within 15 days of receiving the notice.
If payment is not made within the stipulated time, the payee (complainant) can file a criminal complaint before a magistrate under Section 138.
⚖️ Penalties for Cheque Bounce
If the court finds the accused guilty under Section 138, the punishment may include:
- Imprisonment up to 2 years
- Fine up to twice the cheque amount
- Or both
In many cases, the court may also direct the accused to compensate the complainant through settlement or compromise.
📌 Steps to Take in Case of a Cheque Bounce
1. Obtain the Cheque Return Memo
When the bank dishonours a cheque, it issues a return memo explaining the reason. This memo is crucial evidence.
2. Send a Legal Demand Notice
Within 30 days, send a legal notice to the cheque issuer demanding payment. The notice should include:
- Date and amount of the cheque
- Reason for dishonour
- A 15-day deadline for payment
It’s advisable to have the notice drafted by a legal professional for accuracy and compliance.
3. Wait for 15 Days
If the drawer pays within 15 days, the matter is resolved. If not, you are legally entitled to file a case.
4. File a Complaint in Court
Within 30 days after the 15-day notice period ends, you can file a criminal complaint under Section 138 in the local magistrate court.
🧾 Documents Required to File a Case
- Copy of the bounced cheque
- Cheque return memo from the bank
- Copy of the legal notice and proof of delivery (postal receipt or tracking)
- Proof of legal liability (invoice, agreement, or contract)
⚖️ Civil Recovery vs Criminal Prosecution
In cheque bounce matters, you can pursue both:
✅ Criminal Case under Section 138 (for punishment)
To penalize the drawer and seek compensation
✅ Civil Suit under Order 37 CPC (for recovery)
To recover the actual amount due with interest and legal costs
A good lawyer may recommend filing both cases simultaneously for better impact.
📅 Timelines to Remember
| Action | Time Limit |
|---|---|
| Presenting cheque | Within 3 months |
| Sending legal notice | Within 30 days of bounce |
| Drawer’s time to respond | 15 days |
| Filing a case (after 15 days) | Within 30 days |
🤝 Settlement and Compounding
Cheque bounce cases can be settled anytime during the process. Many courts encourage amicable settlement to reduce pendency.
Section 147 of the NI Act allows for compounding of offences — meaning the case can be closed if both parties agree.
🔍 Preventing Cheque Bounce: Tips for Businesses
- Always maintain records of issued cheques and payments
- Do not issue cheques without sufficient funds
- Cross-check signatures and dates before issuance
- Prefer digital or online transfers for large transactions
- Add cheque bounce clauses in your agreements/contracts
📢 Important Legal Advice
- Don’t delay action: Legal timelines are strict and must be followed
- Send notices via registered post with acknowledgement
- Preserve all documents carefully
- Work with a qualified cheque bounce lawyer to build a strong case
📌 Example Scenario
Let’s say Mr. A lends ₹2,00,000 to Mr. B. Mr. B issues a post-dated cheque that bounces due to “insufficient funds.” Mr. A then:
- Collects the bounce memo
- Sends a legal notice to Mr. B
- Waits 15 days
- Files a case in the magistrate court after no payment is made
With proper documentation, Mr. A can recover his money and even claim additional fines or damages.