What Is Bouncing Of Cheque?

Cheques continue to remain an important mode of payment in commercial and personal transactions despite the rapid growth of digital banking systems. A cheque represents a written promise by a person or organisation to pay a specified amount to another person. However, when a bank refuses to honour the cheque and returns it unpaid, the cheque is said to have bounced or been dishonoured. Cheque bounce is not only a financial issue but may also result in serious legal consequences under Indian law.

Meaning Of Bouncing Of Cheque

Bouncing of cheque refers to a situation where a cheque presented to the bank for payment is returned unpaid by the bank. In simple terms, the bank declines to process the payment mentioned in the cheque.

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When a cheque is dishonoured, the bank issues a document known as a cheque return memo mentioning the reason for non-payment. Depending on the reason for dishonour, the drawer of the cheque may face legal liability, penalties and criminal proceedings.

The person issuing the cheque is known as the drawer, while the person receiving the cheque is called the payee or drawee.

Cheque bounce is governed primarily by the Negotiable Instruments Act, 1881, especially Section 138 which deals with dishonour of cheque due to insufficiency of funds.

What Is A Dishonoured Cheque?

A dishonoured cheque is another term used for a bounced cheque. It means that the cheque has failed to clear through the banking system.

Normally, when a cheque is deposited, the bank verifies:

• The signature of the account holder
• Availability of sufficient funds
• Accuracy of cheque details
• Validity period of the cheque
• Any signs of alteration or overwriting

If any issue is found, the cheque is returned unpaid. Such return of cheque is called dishonour of cheque.

Common Reasons For Cheque Bounce

A cheque may bounce for several reasons. Some reasons may attract criminal liability while others may only result in banking penalties.

Insufficient Funds

Insufficient balance in the account is the most common reason for cheque bounce. If the account does not contain enough money to honour the cheque amount, the bank returns the cheque unpaid.

Dishonour due to insufficient funds is punishable under Section 138 of the Negotiable Instruments Act, 1881.

Signature Mismatch

Banks compare the signature on the cheque with the specimen signature available in their records. If the signatures do not match, the cheque may be dishonoured.

Overwriting On The Cheque

Excessive corrections or overwriting on important details such as amount, date or name may lead to dishonour. Banks usually reject cheques containing suspicious alterations.

Expired Cheque

A cheque must be presented within its validity period. Generally, a cheque remains valid for three months from the date mentioned on it. If presented after expiry, it becomes invalid and may bounce.

Damaged Or Torn Cheque

A cheque that is damaged, stained, torn or disfigured may not be accepted by the bank because the information becomes unclear.

Difference In Amount

If the amount written in words differs from the amount written in figures, the bank may reject the cheque.

Even during legal proceedings, the cheque amount and the amount mentioned in the legal notice must match exactly. Any discrepancy may weaken the claim under Section 138.

Payment Stopped By Drawer

Sometimes, the drawer instructs the bank to stop payment of the cheque. Such stop payment instructions may also result in cheque dishonour.

Incorrect Date

A cheque may also bounce if the date is incomplete, incorrect or altered improperly.

Closed Bank Account

If the bank account has already been closed before presentation of the cheque, the cheque will be dishonoured.

Legal Framework Governing Cheque Bounce In India

Cheque bounce matters in India are mainly governed by the following laws:

• Negotiable Instruments Act, 1881
• Code of Criminal Procedure, 1973/Bharatiya Nagarik Suraksha Sanhita
• Indian Evidence Act, 1872/BSA
• , where applicable in procedural matters

Section 138 of the Negotiable Instruments Act provides criminal liability in cases where a cheque is dishonoured due to insufficiency of funds or similar reasons.

The law was introduced to maintain trust and credibility in cheque transactions and commercial dealings.

Essentials Of An Offence Under Section 138

For cheque bounce to become a criminal offence under Section 138, certain conditions must be fulfilled.

Legally Enforceable Debt Or Liability

The cheque must have been issued towards repayment of a legally enforceable debt or liability. If the cheque was issued as a gift, donation or friendly gesture without legal obligation, Section 138 may not apply.

Presentation Within Validity Period

The cheque must be presented to the bank within three months from the date mentioned on the cheque.

Return Of Cheque By Bank

The cheque must be dishonoured by the bank due to insufficient funds or related reasons.

Issuance Of Legal Notice

The payee must issue a written legal notice to the drawer within 30 days from receiving the cheque return memo from the bank.

Failure To Make Payment

The drawer must fail to make payment within 15 days from the date of receiving the legal notice.

Only after fulfilment of these conditions can criminal proceedings be initiated under Section 138.

Cheque Bounce Notice

A cheque bounce notice is a formal legal notice sent by the payee to the drawer demanding payment of the cheque amount.

The notice is an essential legal requirement before filing a complaint in court.

Time Limit For Sending Notice

The payee must issue the notice within 30 days from the date of receiving information from the bank regarding dishonour of cheque.

Contents Of The Notice

A cheque bounce notice generally includes:

• Details of the cheque
• Cheque number and date
• Amount mentioned in cheque
• Reason for dishonour
• Demand for payment
• Time period for payment

The notice must clearly mention the exact cheque amount. Even a small variation in amount may create legal complications.

Time Given To Drawer

After receiving the notice, the drawer gets 15 days to make payment of the cheque amount.

If payment is made within this period, no offence is considered to have been committed under Section 138.

Consequences Of Bouncing Of Cheque

Cheque bounce can have financial, legal and reputational consequences.

• Criminal Liability: Dishonour of cheque due to insufficient funds is a criminal offence under Section 138 of the Negotiable Instruments Act. The drawer may face criminal prosecution before a Magistrate.
• Imprisonment: The punishment for cheque bounce may extend to imprisonment for up to two years.
• Fine: The court may impose a fine up to twice the cheque amount.
• Civil Liability: Apart from criminal proceedings, the payee may also file a civil suit for recovery of money. Civil proceedings focus on recovery of the amount rather than punishment.
• Banking Penalties: Banks also impose cheque bounce charges and penalties on the account holder. These charges vary between banks and depend upon the cheque amount and type of account.
• Damage To Reputation: Cheque dishonour may affect the credibility and financial reputation of the drawer, especially in commercial transactions.

Procedure In A Cheque Bounce Case

The legal process in cheque bounce matters follows a structured procedure.

• Presentation Of Cheque: The payee presents the cheque before the bank for payment.
• Dishonour Of Cheque: If the bank rejects the cheque, it issues a cheque return memo mentioning the reason for dishonour.
• Sending Legal Notice: The payee sends a legal notice to the drawer within 30 days.
• Waiting Period Of 15 Days: The drawer receives 15 days to clear the payment.
• Filing Of Complaint: If payment is not made within 15 days, the payee may file a complaint before the Magistrate within the prescribed limitation period.
• Court Proceedings: The court examines the complaint and evidence. Summons may be issued to the accused drawer. Both parties are given opportunity to present evidence and arguments.
• Judgment: If the court finds the accused guilty, punishment under Section 138 may be imposed.

Jurisdiction For Filing Cheque Bounce Cases

Cheque bounce complaints are filed before the Judicial Magistrate or Metropolitan Magistrate depending upon the location.

The complaint may generally be filed at places connected with the transaction such as:

• Place where cheque was presented
• Place where cheque was dishonoured
• Place where payment was to be made
• Place where notice was issued or served

Jurisdictional rules have evolved through judicial interpretations and statutory amendments.

Liability Of Companies In Cheque Bounce Cases

When a company issues a cheque that bounces, not only the company but also responsible directors and officers may face liability.

The law provides that persons responsible for conduct of the company’s business at the time of offence may be prosecuted.

However, liability depends on the role and responsibility of the concerned person in the company.

Reply To Cheque Bounce Notice

The drawer may send a reply to the legal notice through an advocate.

A reply may contain:

• Facts relating to the transaction
• Objections to allegations
• Proof of payment if already made
• Clarification regarding disputed liability

A carefully drafted reply may help in resolving disputes or presenting a defence during trial.

Defences Available In Cheque Bounce Cases

Certain defences may be available to the accused depending upon facts of the case.

• Absence Of Legally Enforceable Debt: If no valid debt or liability existed, Section 138 may not apply.
• Defective Legal Notice: An incorrect or invalid legal notice may affect the maintainability of proceedings.
• Payment Made Within Notice Period: If payment was made within 15 days from receipt of notice, criminal liability may not arise.
• Cheque Obtained Through Fraud Or Coercion: The accused may challenge the validity of the cheque transaction in appropriate circumstances.

Difference Between Civil And Criminal Proceedings

Cheque bounce disputes may involve both civil and criminal remedies.

Criminal Proceedings

Criminal proceedings under Section 138 aim to punish the offender for dishonour of cheque.

Punishments may include imprisonment, fine or both.

Civil Proceedings

Civil proceedings focus on recovery of money due to the payee.

The court may direct repayment along with interest and costs.

Both remedies can proceed simultaneously in many situations.

Cheque Bounce Charges Imposed By Banks

Apart from court proceedings, banks impose cheque dishonour charges.

These charges differ from one bank to another and may depend upon:

• Nature of account
• Amount involved
• Frequency of dishonour
• Reason for bounce

Usually, charges range from a few hundred rupees to higher amounts in commercial accounts.

Both drawer and payee may sometimes bear banking charges.

Conclusion

Bouncing of cheque is a significant legal and financial issue under Indian law. Although cheques continue to be widely used in personal and commercial transactions, dishonour of cheque may lead to criminal prosecution, financial penalties and civil recovery proceedings. The Negotiable Instruments Act, 1881 provides a structured legal mechanism to protect the interests of the payee and maintain confidence in banking transactions. Careful financial management, proper cheque handling and timely payment of liabilities play an important role in preventing cheque bounce disputes and avoiding unnecessary legal complications.