Cheques continue to be a widely used mode of payment in India for personal, business, and corporate transactions. However, when a cheque is dishonoured due to insufficient funds or other reasons, it can lead to serious legal consequences. Many people are unaware that a simple cheque bounce is not just a financial inconvenience—it is also a criminal offence under Indian law.
In this article, we’ll break down everything you need to know about cheque bounce punishment, cheque bounce penalty, and the legal remedies available under the Section 138 of the Negotiable Instruments Act. If you are an individual or a business facing cheque dishonour issues, this guide will help you understand your rights, obligations, and possible legal actions.
What is Cheque Bounce?
A cheque bounce occurs when the bank refuses to honour a cheque issued by a drawer. The most common reason is insufficient funds in the drawer’s account, but other causes include:
- Signature mismatch
- Overwriting on cheque
- Expired cheque validity (post-dated or beyond three months)
- Account closed by the bank
- Stop-payment instructions by the drawer
Regardless of the reason, when a cheque is dishonoured, the payee (the person or company who was supposed to receive money) faces financial losses and legal hassles.
Cheque Bounce Law in India
The Indian legal system treats cheque dishonour seriously. Under Section 138 of the Negotiable Instruments Act, 1881, bouncing of a cheque due to insufficient funds is a criminal offence.
This means that if someone issues a cheque that gets dishonoured, they can be penalised with:
- Cheque bounce jail term of up to two years, or
- Cheque bounce penalty (fine) which may extend up to twice the amount of the cheque, or
- Both imprisonment and fine.
This law applies equally to individuals and companies. In case of a corporate cheque dishonour, both the company and the responsible signatory (like a director) can be held liable.
Cheque Bounce Consequences for the Drawer
When a cheque bounces, the consequences are not just financial but also legal. Here are the key outcomes:
- Criminal Liability – The drawer can face imprisonment or fine.
- Civil Liability – The payee can also file a civil recovery suit for the cheque amount plus interest and damages.
- Reputation Damage – Both individuals and businesses suffer reputational harm when they are accused of issuing dishonoured cheques.
- Bank Restrictions – Continuous cheque dishonours can lead to closure of the drawer’s bank account.
Step-by-Step Legal Process After Cheque Bounce
If your cheque has bounced, the law provides a clear procedure to seek justice.
Step 1: Cheque Return Memo
When the cheque is dishonoured, the bank issues a Cheque Return Memo stating the reason (e.g., insufficient funds).
Step 2: Legal Notice for Cheque Bounce
The payee must send a legal notice for cheque bounce to the drawer within 30 days of receiving the cheque return memo. This notice demands the drawer to make the payment within 15 days.
Step 3: Filing a Complaint Under Section 138
If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a criminal complaint in the court under Section 138 of the Negotiable Instruments Act.
Step 4: Court Proceedings
The court may summon the drawer, and if found guilty, impose cheque bounce punishment, which includes bounced cheque fine and possible imprisonment.
Cheque Bounce Penalty and Jail Term
The punishment for cheque bounce depends on the circumstances of the case.
- Fine – Up to double the cheque amount.
- Jail Term – Up to 2 years imprisonment.
- Both – In serious cases, both fine and imprisonment may be imposed.
For example, if a cheque of ₹5 lakh is dishonoured, the court may impose a penalty up to ₹10 lakh in addition to a possible jail term.
Cheque Bounce in Business and Corporate Transactions
For businesses, a bounced cheque can disrupt trust and ongoing contracts. Under Indian law, if a company issues a dishonoured cheque, not only the company but also the directors and officers responsible for signing the cheque can face liability.
Many corporate clients prefer to resolve these matters through settlement and mediation, but if not settled, strict legal action is taken. For entrepreneurs, SMEs, and corporations, understanding cheque bounce law is crucial to maintaining business credibility.
Cheque Bounce Punishment vs. Civil Recovery
It’s important to note that cheque bounce cases involve both criminal and civil liabilities.
- Criminal Action – Filed under Section 138 NI Act for punishment and deterrence.
- Civil Action – Filed separately for recovery of the cheque amount, interest, and damages.
Thus, the payee can pursue both remedies simultaneously.
Can You Go to Jail for Cheque Bounce?
Yes. If you are the drawer of the cheque and fail to make the payment even after receiving a legal notice, the court may order imprisonment up to two years. However, courts usually give preference to repayment and settlement over sending the accused to jail.
Still, the possibility of a cheque bounce jail term makes it a serious issue, and one should never ignore a cheque dishonour notice.
Defences Available in Cheque Bounce Cases
If you are accused of cheque bounce, there are certain defences you can take:
- The cheque was not issued for discharge of a legally enforceable debt.
- The cheque was issued as security and not for repayment.
- The notice was not served properly.
- The complaint was not filed within the prescribed time limits.
Courts examine these defences carefully, and professional legal assistance is necessary to build a strong case.
Cheque Bounce Consequences for the Payee
While the law protects the payee, they must also follow due process. If the payee fails to send a legal notice on time or misses the filing deadlines, the case may get dismissed. That’s why seeking professional legal help immediately after receiving a cheque return memo is highly recommended.
How to Avoid Cheque Bounce Cases?
For individuals and businesses alike, prevention is always better than litigation. Here are a few tips:
- Always maintain sufficient funds before issuing cheques.
- Avoid post-dated cheques unless necessary.
- Reconcile bank accounts regularly.
- Communicate with creditors to resolve disputes before the cheque date.
Why Legal Help is Essential in Cheque Bounce Cases
Cheque bounce matters can become complicated due to strict timelines, procedural requirements, and potential criminal liability. Whether you are a payee wanting to recover your dues or a drawer defending yourself, legal guidance ensures proper compliance and strategy.
At LegalSakhi.com, we assist individuals, businesses, and corporations in handling cheque bounce disputes effectively. From sending a legal notice for cheque bounce to representing clients in court, our team ensures strong legal representation.
Conclusion
A bounced cheque is not just a minor inconvenience—it is a criminal offence with serious financial and legal consequences. The cheque bounce punishment under Section 138 of the Negotiable Instruments Act can include fines up to double the cheque amount and imprisonment up to two years. Whether you are an individual, a professional, or a business, knowing your rights and obligations is crucial.
If you have received or issued a dishonoured cheque, do not delay legal action. Timely steps like sending a legal notice for cheque bounce and filing a complaint can make all the difference in securing justice.
Need expert help with a cheque bounce case? Contact our team at +91-7678241421 or whatsapp or visit our Contact Us page today for professional legal advice and representation.