Explained: What is Cheque Bounce and Laws in India

What is dishonor/cheque bounce?

A. Dishonored cheque is cheque that the bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honor a cheque, with insufficient funds being the most common cause.

Q. What legal action can be taken against the dishonour of cheque?

A. The holder of the cheque can file a complaint under Section 138 of Negotiable Instrument Act, 1881 against the drawer of the cheque and can also file a civil case for recovery.

Q. What is procedure for filing complaint under Section 138 case against the drawer?

A. Firstly the holder of the cheque has to send a demand notice to the drawer of the cheque within 30 days, after receiving such information from bank, asking the drawer to make the payment of the cheque amount within 15 days from the receipt demand notice. If the drawer fails to make the payment within 15 days from the receipt of the notice with respect to dishonor of the cheque, the beneficiary of the cheque can file a complaint before the Learned Magistrate having jurisdiction to entertain such complaint.

Q. Whether cheque bounce is a criminal offence?

A. Getting a cheque bounced or dishonored is considered as a criminal offense, punishable by fines and/or jail term, under Section 138 of the N.I Act.

Q. What is the punishment under Section 138 of N.I Act 1881?

A. The drawer/signatory of the cheque can be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

Q. Whether criminal and civil case can be filed simultaneously?

A. Yes, criminal and civil case for dishonoring of a cheque can be filed simultaneously.

Q. Whether a cheque issued from the account of guarantor as a security also would fall within the purview of Section 138 of NI Act or not?

A. The security cheque also would fall within the purview of the Section 138 of NI Act and a person could not escape his liability.

Q. In what circumstances cheque bounce does not amount to an offence?

A. (a) When the cheque is given as an advance and there exists no legal liability for payment as such

(b)When the cheque is given as a security

(c) there is disparity in amount stated in words and figures

(d) alternations in cheque require attestation by the drawer

(e) If the cheque is found mutilated

(f) When a cheque is issued to a charitable trust as a gift or donation.

Q. What happens to a cheque bounce case when the accused is ready to deposit the cheque amount?

A. If accused is ready to pay the cheque amount along with interest and cost as assessed by the Court by a specified date, the Court is entitled to close the proceedings.

Q. Whether a single complaint is maintainable for dishonour of several cheques?

A. No, a single Complaint can only be made with respect to three dishonoured cheques. For example, if there are six dishonoured cheques, 2 complaints will have to be filed.

(The author, Prachi Mishra, is a Supreme Court lawyer and Additional Advocate General, Chhattisgarh)

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