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Cheque Bounce Law in India

2018-04-20 11:24:03
Cheque Bounce Law in India

Definition of a Cheque

As per its legal definitions under Section 6 of the Negotiable Instruments Act, 1881, a cheque is a “bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand and it includes the electronic image of the truncated cheque and a cheque in the electronic form”. In simple words, a cheque is a bill of exchange that is payable upon demand only and has to be drawn on a specific banker. A cheque under the Negotiable Instruments Act, 1881 includes not only a cheque in its physical form but also an electronic cheque which has been signed using a digital signature.

There are three parties to a transaction through a cheque:

  • 1.      The Drawer: The drawer is the person who issues or writes the cheque.
  • 2.       The Payee: The payee is the person to whom the cheque amount has to be paid- it is the person named in the cheque.
  • 3.      The Drawee/Banker: The banker is the bank that is ordered by the drawer, by way of cheque, to pay the said amount to the payee.

The essential feature of the cheque is that it is payable on demand. This means that even if a bill of exchange is drawn on a banker, as long as it is not payable on demand, it cannot be considered a cheque. The other essential features of a cheque are:

  • ·         A cheque has to be in writing.
  • ·         A cheque consists of an unconditional order.
  • ·         A cheque has to be drawn on a banker specified.
  • ·         The order of the cheque should be only for the payment of a particular amount of money.
  • ·         A cheque has to specify the payee’s name.
  • ·         A cheque must mention the date on which it was written.
  • ·         A cheque should bear the drawer’s signature.
  • ·         A cheque is a transferable instrument.

What is the meaning of a ‘cheque bounce’?

A cheque bounce is also referred to as dishonouring of cheque in legal terminology. Section 92 of the Negotiable Instruments Act, 1881 is the section that defines cheque bounce as “A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.” In simple terms, a cheque bounce or a dishonour of cheque is when the banker/drawee does not pay the cheque amount to the payee.

There are a number of reasons why a cheque may be dishonoured. Listed below are some of the cases of cheque bounce:

  • 1.      When the account balance of the drawer of the cheque is inadequate
  • 2.      When the signature of the drawer does not match
  • 3.      If the cheque is overwritten
  • 4.      When the account number is incorrect or if the account has been closed
  • 5.      When the payment exceeds the Overdraft limit
  • 6.      If the cheque is presented to the incorrect bank branch
  • 7.      When the payee becomes insolvent
  • 8.      When the payee becomes insane
  • 9.      When the payee dies
  • 10.  When the cheque does not contain the company’s seal in cases where the drawer is a company
  • 11.  If the amount written in words and the amount written in numerical does not match
  • 12.  If the cheque is presented after its expiry viz three months
  • 13.  When the account holder themselves stop the payment
  • 14.  If the account is a joint account but the cheque bears the signature of only one account holder.
  • 15.  When the cheque breaches the trust rules
  • 16.  When the banker is in doubt of the genuine nature of the cheque

Cheque bounce in India is criminal offence and Section 138 of the Negotiable Instruments Act, 1881 provides the punishment/ penalty for cheque dishonour or cheque bounce in cases where either the drawer’s account does not have sufficient money or when the amount exceeds the overdraft limit. Section 138 imposes a strict liability upon the drawer with a punishment of imprisonment of up to two years or a fine up to twice the cheque amount or even both.

The following conditions need to be met in order for the penalty under Section 138 to be applicable:

  • 1.      The cheque should have been issued for a legal purpose or debt.
  • 2.      The cheque should have been presented to the bank before its expiry or within six months, which ever comes earlier.
  • 3.   The banker should have dishonoured the cheque for the lack of sufficient funds or due to exceeding the limit of overdraft.
  • 4.      The bank should have informed the payee about the cheque dishonour/ cheque bounce
  • 5.    The payee should have sent a written notice to the drawer within 30 days of such a communication from the bank, demanding the drawer to pay the cheque amount.
  • 6.      The drawer should have failed to make the said payment within 15 days of receiving the notice.

Once these conditions have been met, a cause of action against the drawer arises i.e. the drawer can now be held liable under Sec. 138 for cheque bounce.

However, there are three exceptions to this criminal liability. The punishment under Section 138 cannot be me made applicable in the following cases:

  • 1.      If the cheque which bounces is a donation or a gift
  • 2.      If the cheque which bounces has been given only as a discharge of a mere moral obligation
  • 3.      If the cheque is given for an unlawful or illegal consideration

What should you do when your cheque bounces?

One should follow the following procedure in the event of a cheque bounce:

  •        I.            Notice of Dishonour

When a cheque cannot be paid by a bank, the bank has to inform the payee that the cheque has been dishonoured and that the payment cannot be made. The payee then must send a Notice of Dishonour or a Demand Notice to the drawer within 30 days from the time the bank returns the cheque to the payee. This notice needs  to be given before any legal action through them judicial system can be taken so that the drawer of the cheque can be informed that he/she shall be liable in case they cannot pay the cheque amount.

There is no specific format for such a legal notice but it should contain the following essential elements:

  • 1.     The notice should identify the dishonoured cheque and state that the particular cheque has been dishonoured. It should also state the amount that is demanded from the drawer.
  • 2.      The notice should also mention that the cheque was presented while it was valid.
  • 3.  The manner in which the cheque has been dishonoured: either thought non-payment or non-acceptance and related information as provided by the bank.
  • 4.      The drawer of the cheque shall be liable for the cheque bounce.
  • 5.      The demand notice should also mention the legal course that will be taken in the event that the drawer of the cheque cannot pay the said amount within the given period of 15 days.

The demand notice can be given by the holder of the bill/ the payee but it is prudent to first get the notice checked by a lawyer specialising in cheque bounce. It is also advisable for keep safe the proof of delivery of the notice as it may come of use in when the case goes to court.

   II.            Complaint

Once the demand notice has been sent to the drawer but he/she does not provide with a reply within 15 days starting from the date of delivery of the demand notice/ notice of dishonour and does not pay back the due amount, the payee is entitled to file a formal complaint with the competent court. The payee has 30 days after the end of the said 15 days period to file such a complaint. 

A competent court is the court which has the power to take up the payee’s case. A court is competent if, within its jurisdiction, any of the given events have occurred:

  • ·         The cheque was drawn in a place under its jurisdiction
  • ·         The place where the bank returned the cheque is under the court’s jurisdiction
  • ·         The place where the cheque was presented falls within the court’s jurisdiction
  • ·         The place where the payee served the demand notice.

The complaint should contain the important details of the event otherwise the court may dismiss the complaint. These important details include the date of cheque bounce/ dishonour of cheque, date of presentation of cheque and the date when the demand notice was issued.

In addition to the complaint, the oath letter and photocopies of all related documents like the cheque itself, a copy of the demand notice, proof of delivery of demand notice etc. should also be kept at hand.


  •      III.            The judicial procedure

When it is time to file the suit in court, the memo of the advocate is very important as well as the complainant’s signature.  Once the case has been filed, the Judicial Magistrate First Class checks all the documents that been submitted by the complainant. The documents are cross checked against the originals and therefore all the original documents have to be presented to the court. The court also checks for the limitation period to determine if the suit has been filed within time. The complainant has to fill a Process Form (called a bhatta) which asks for their details.

Once this paperwork is done, the court will summon the accused drawer of the cheque which means that the court will ask him/her to appear before it on a particular date.

A bailable warrant can be issued by the court, upon the request of the complainant, against the accused if they do not comply by the summons order and fail to appear before the court. But if the accused still absconds and does fail to appear before the court, then the court has the power to issue a non-bailable warrant against them.

The amount of court fee differs depending upon the amount of the cheque. For cheques up till Rs. 50,000, a court fee of Rs. 200 is applicable. For cheques between Rs. 50,000 and Rs. 2,00,000, the court fee is Rs. 500. And for cheques of amount more than Rs. 2,00,000, the court fee is Rs. 1000.


Some additional points

  • ·         The life span of a cheque is of three months i.e. the cheque will expire after once three months have been completed since the fate is was issued on.
  • ·         A complaint has to be filed by the payee within a period of 30 days failing which the court cannot take cognizance of his complaint but a delay in filing of complaint beyond the 30 days can be excused if the court agrees that there were exceptional circumstances that led to the delay.
  • ·      A drawer cannot expect to extent his limitation period of 15 days beginning from the date of the demand notice by asking for the cheque and later dishonouring it.
  • ·    Because the punishment for a cheque bounce under Section 138 is applicable only to cheques that have a legal obligation attached to them, dishonour of cheques given as donation or gift is not covered by this section. 

In January 2018, the Negotiable Instruments (Amendment) Bill, 2017 was introduced into the Lok Sabha. The amendments were introduced as a measure against the long drawn court proceedings of cheque bouncing which are often delayed by use of legal tactics like stay orders and appeal applications. This bill proposes that there should be provisions for interim compensation i.e. the court would have the power to order the drawer of the cheque/ accused to pay to the complainant interim compensation for the time till the case concludes. Such compensation can be payable under some conditions like when the accused has pleaded not guilty to cheque bounce. This compensation cannot be more than 20% of the total cheque amount and is payable by the accused within a time period of 60 days from the date the court issues such an order.

If the accused is declared innocent and acquitted by the court, then the complainant will have to return this interim compensation amount to the drawer in addition to an interest which should be paid within a time frame of 60 days. 



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