Advocate Prachi Goel & Associates

Cheque Bounce Laws in India: Legal Remedies and Implications

  • 30-Apr-2025
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In India, a cheque bounce is not just a financial inconvenience—it's a legal offense under the Negotiable Instruments Act, 1881. With an increase in cheque-based transactions, understanding the law governing dishonoured cheques is crucial for individuals and businesses alike.

What Is a Cheque Bounce?

A cheque bounce occurs when a bank refuses to honour a cheque, usually due to insufficient funds, account closure, signature mismatch, or payment stop instructions.

Legal Framework: Section 138 of the Negotiable Instruments Act, 1881

Section 138 is the cornerstone provision that criminalizes cheque dishonour. It provides that:

  • A cheque must be issued for the discharge of a legal liability or debt.

  • It must be presented within 3 months (or its validity period).

  • Upon dishonour, the payee must send a legal notice within 30 days from the date of bounce.

  • The drawer has 15 days to make the payment from the receipt of the notice.

  • If payment is not made, a criminal complaint can be filed within 30 days of the expiry of the 15-day period.

Penalties under Section 138

If found guilty, the drawer may face:

  • Imprisonment up to 2 years, or

  • Fine up to twice the cheque amount, or both.

Recent Developments

  • Decriminalization Debate: The government proposed decriminalizing cheque bounce cases to improve ease of doing business but faced opposition due to the risk of weakening financial discipline.

  • Fast-track Courts & Online Proceedings: Some states have adopted digitized and fast-tracked processes for quicker resolution.

Civil Remedies in Addition to Criminal Proceedings

Apart from criminal action under Section 138, the payee may also:

  • File a civil suit for recovery under Order XXXVII of the Code of Civil Procedure.

  • Initiate summary suits for faster recovery of money.

Precautions for Drawer and Payee

For the Drawer:

  • Maintain sufficient balance.

  • Avoid post-dated cheques unless confident of funds.

For the Payee:

  • Keep records of transactions.

  • Present the cheque within validity.

  • Act promptly after cheque dishonour.

Conclusion

Cheque bounce is a serious offense with both civil and criminal consequences in India. Whether you're issuing or receiving cheques, staying aware of your rights and obligations under the law can save you from lengthy litigation and financial losses.

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