In the world of business and personal transactions, cheques have long served as a trusted mode of payment. But when a cheque gets dishonoured—commonly known as a “cheque bounce”—it can quickly spiral into a legal battle. From the moment ink hits paper to the point where court proceedings begin, the legal journey of a bounced cheque is marked by defined steps under the law. Here’s a breakdown of what this journey looks like and what both payers and recipients should know.
1. The Signature: Issuing the Cheque
The journey begins with a simple act—issuing a cheque. This implies a promise to pay a specific amount to the bearer or the named person. The cheque is more than a financial document; it represents trust and commitment to honor a financial obligation.
However, if the issuer does not maintain sufficient funds or issues the cheque with malintent, the promise quickly turns into a legal liability.
2. The Bounce: Dishonour of Cheque
When the cheque is presented to the bank and gets returned unpaid, it’s termed as “dishonoured.” Common reasons include:
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Insufficient funds
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Signature mismatch
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Account closure
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Payment stopped by drawer
The bank issues a Cheque Return Memo stating the reason for dishonour—a critical document in initiating legal action.
3. The Notice: Formal Legal Demand
Under Section 138 of the Negotiable Instruments Act, 1881, the payee must send a legal notice to the drawer within 30 days of receiving the return memo.
The notice demands payment of the cheque amount within 15 days of receipt. This notice is not merely procedural—it gives the drawer an opportunity to rectify the mistake and avoid litigation.
4. The Wait: Response Time for Drawer
Once the notice is served, the law allows the drawer 15 days to clear the dues. If payment is made within this period, the matter ends here. However, if the drawer fails or refuses to pay, the next legal step unfolds.
5. The Summons: Filing a Criminal Complaint
If no payment is received within the stipulated time, the payee can file a criminal complaint before a Magistrate within 30 days from the expiry of the notice period.
Upon acceptance of the complaint, the Magistrate issues summons to the drawer to appear in court. This marks the formal beginning of criminal proceedings for cheque bounce.
6. The Legal Consequences
If found guilty under Section 138, the drawer faces:
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Imprisonment of up to 2 years, or
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Fine which may extend to twice the amount of the cheque, or
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Both imprisonment and fine
In addition to this, the court may also direct the drawer to compensate the payee.
Conclusion: Know Your Rights, Protect Your Transactions
The cheque bounce journey is a blend of civil and criminal law, with strict timelines and formal procedures. Whether you’re a business owner, service provider, or individual, it’s crucial to handle cheques carefully—both when issuing and receiving.