Cheque Bounce in India: Laws And Punishment

Cheque Bounce in India: Laws and Punishment

This article on ‘Cheque Bounce in India: Laws and Punishment‘ was written by Madhur Anand, an intern at Legal Upanishad.


Carrying money might be perilous, especially when the sum is enormous. Backed by the regulating authorities, Cheques are legal tender, which allows for an easy way to do business because there is less possibility of stealing or robbing. Cheques are negotiable instruments, one of the most often used mediums of exchange.  Negotiable instruments are one of the most practical tacks to transfer money in the business sector and have been utilised for a long time.

The booming of the banking industry and the creation of additional branches have made checks one of the most used negotiating instruments. There has always been a chance that checks issued as Negotiable Instruments would be issued with insufficient funds in the account. The Banking, Public Financial Institution and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1988), added Sections 138 to 142 which dealt with the dishonouring of cheques, was responsible for incorporating chapter XVII into the Act.  This article is an effort to contemplate the Laws and Punishments around cheque bounce in India and parts and parcels related to it.

What is a Cheque?

“Cheque as a bill of exchange which is drawn on a specified banker and would not be payable unless on demand. A cheque is inclusive of an electronic image of a truncated cheque and a cheque in electronic form.”

It is a negotiating mechanism. These are signed deals that guarantee a certain individual or the assignee will get a certain amount of money. Its transferrable nature enables the possessor to take the money as cash or utilise it any way they consider fit, depending on the transaction or personal desire. Cheques, bills of exchange, and promissory notes are examples of negotiable instruments. Only the payee is authorised to negotiate a check.

The payee’s bank account must be used to deposit the checks. The individual on whose behalf the check is written is known as the “payee,” the bank that is instructed to pay the amount is known as the “drawee,” and the person who wrote the check is known as the “drawer.”

Dishonoured Cheque

The following are the possible reason for dishonouring a cheque:

  1. There is not enough money in the account to cover the payment.
  2. If the drawer shuts his account before giving the check to the bank.
  3. Adding extra text or overwriting the checks.
  4. Absence of a signature or a signature that does not match the specimen signature that the bank has.
  5. On the drawer’s instruction, the check’s payment was stopped.
  6. Absence or illegible writing of the payee’s name.
  7. If the sums specified in figures and digits are not compatible.
  8. If the account number is missing or illegibly written.
  9. If any legal authorities, or order, the check’s payment will be stopped.
  10. Upon demise, mental incapacity, or insolvency of the drawer.
  11. If the drawer does not accept the alterations made to the check.
  12. Date omission or inaccurate date mention.
  13. when the three-month period following the specified date has passed.
  14. If the check is damaged, such as torn, damp, or stained.


Legal Notice for Dishonour

The documentation that the payee provides to the drawer regarding the fact that the check has been dishonoured is referred to as the “legal notice of dishonour of cheque.” (A “return memo” is what a bank sends to the payee informing them that the check has been dishonoured.) This warning is intended for the person who will be held accountable for breaking the principles’ rules and regulations. The notification serves as a warning for the perpetrator, making his liability known to him.

A written notice stating that a check has been returned unpaid and a demand for payment must be made within 30 days of receiving the information of dishonour. The plaintiff may be released from his responsibility for the dishonoured check if the authority delays sending the notice.

The Very Heart and Soul of Nia – Section 138

Dr. B.R. Ambedkar once said, “If I was asked to name any particular article in this Constitution as the most important — an article without which this Constitution would be a nullity — I could not refer to any other article except this one (Article 32). It is the very soul of the Constitution and the very heart of it.” It may not be erroneous to enunciate the same for section 138 of NIA.

The section states that “when a person who has an account with the bank wants to make a payment from that account to some other person for the discharge, in whole or in part, of any debt or other liability, and that is returned by the bank is it called dishonouring of the cheque.” 

Even in layman term, they refer it as “138 ka Case” (“एक सौ अड़तीस” का केस). Even if a person is not well versed with the intricacies and nuances of legal provisions, this term is quite a magnificent way to give him/her an idea of the issue.

Cheque Bounce in India: Laws And Punishment
Cheque Bounce in India: Laws And Punishment

Who can file a Complaint?

A competent individual to file a complaint is a payee or holder in good standing.

A corporeal person who can present in court physically must file the complaint. A natural person should represent a company or firm. The holder of a power of attorney may file a complaint. The corporation doesn’t need to be represented solely by the individual whose statement was taken under oath in the first instance until the procedure has concluded. The corporation can later send a person qualified to represent the company even if the individual sent earlier lacked permission.

The requirements that must be completed for an act to be considered an offence under the purview of this section are listed below.

  1. This section’s main requirement is that the debts being recovered are legitimate or legal.
  2. The objective of the issued check must be to completely or partially discharge any indebtedness or other liability.
  3. Cheques must be handed to the bank before the 6-month mark or within the 3-month window that defines their validity, depending on what falls first.
  4. The Payee or the Holder shall give written notice to the Payee or the Holder within thirty (30) days after receiving notice from the Bank that the Cheque has been returned as unpaid. 
  5. Once the drawer has been apprised of the fact that the payee or holder has received the notice in due process, the drawer must have failed to pay the amount specified in the check within 15 days of the date of receipt of the notice.
  6. After the 15-day grace period has passed and the amount owed on the returned check has not been paid, a complaint must be made within one month. Any authority not below the rank of Judicial Magistrate of the first class should be brought. The complainant must convince the court that he had a good reason for failing to file his complaint within that time frame for the court to take it under consideration. 
  7. The nature of offences that falls under this umbrella is Compoundable, in which one of the parties may agree to a settlement and decide to withdraw the accusations they have brought.


The holder of the check may bring a civil lawsuit to recover the amount that the drawer was obliged to pay to him. The provisions from Sections 138 to 142 of the Negotiable Instruments Act of 1881 establish the criminal liability of the perpetrator for dishonoured cheques. Instances where a cheque is returned unpaid due to insufficient funds or for exceeding the payment limit as specified in the bank agreement give rise to criminal culpability.

The maximum sentence for imprisonment under the 2002 amendment is two years, and the maximum fine is double the amount of the cheque. However, if the trial is concluded quickly, the magistrate may impose a sentence of up to one year in prison and a fine of up to Rs. 5,000. The amount of compensation that may be given is unlimited.

Every person who has the authority to exert control over the conduct of the business would be held accountable in a situation where the perpetrator is a company, firm, or other financial organisation.


Due to numerous factors that have increased the complexity of the proceedings, the cases under Section 138 still outstanding are enormous. The law surrounding the same is always being improved. However, the Courts today face a greater task in disposing of the cases.

According to the Supreme Court of India, there are currently more than 40 lakh cases pending in courts related to cheque bounces. However, the reforms implemented in 2015 and 2018 that vowed to resolve the cases as quickly as possible and also guarantee that the victims receive assistance have introduced transparency to the system by barring the persons from skipping payments. As a result, the Section 138 process has made it easier for consumers to conduct business since they feel more secure.

Keeping up with the current banking system has also been made easier by this. In the Indian Economy, cheque plays such a role that made the Hon’ble Supreme Court table a proposal to set up fast-track courts to make the path clear for the cases related to dishonoured cheque. It also emphasized creating a commission to address the issue of pending check bounce cases.