Cheque Bounce: Meaning, Legal Consequences, Charges & Cases

A cheque bounce notice is a legal notice issued in a cheque bounce case under Section 138 of the Negotiable Instruments Act after a cheque is dishonoured, typically due to insufficient funds. It requires the drawer to pay the exact cheque amount within 15 days.

Key Highlights

• Notice: A cheque bounce notice is issued after a cheque is dishonoured due to insufficient funds.
• Timeline: The notice must be sent within 30 days, and the drawer gets 15 days to make the payment.
• Action: If payment is not made, the payee can file a cheque bounce case before the Magistrate.
• Penalty: The offence may lead to a fine of up to twice the cheque amount, imprisonment of up to 2 years, or both.

What is a Cheque Bounce?

When the payee presents a cheque to the bank for payment, and the cheque is returned unpaid by the bank with a memo of insufficient funds, the cheque is said to have bounced. 

• Cheques may bounce for many reasons, but insufficient account balance is the most common and legally punishable cause. 
• In such cases, the bank issues a return memo to the payee. 
• The payee can then send a cheque bounce notice to the drawer, demanding payment of the cheque amount.

Reasons for Cheque Bounce

The various situations that result in cheque bounce are as follows:

• Insufficient funds: The account does not have enough balance to honour the cheque.
• Expired cheque: The cheque is presented after its 3-month validity period.
• Overwriting: The cheque contains unauthorised corrections or alterations.
• Damaged cheque: The cheque is torn, stained, or unreadable.
• Signature mismatch: The signature is missing, unclear, or does not match bank records.
• Amount mismatch: The cheque amount and legal notice amount do not match exactly.

What are the Consequences of a Cheque Bounce Notice?

If the drawer does not clear the cheque amount within 15 days of receiving the notice:

• The payee can file a criminal complaint
• Court proceedings may be initiated
• The drawer may face imprisonment, fine, or both
• Company directors may also be held liable if a company issued the cheque

How to Resolve a Cheque Bounce Issue?

Cheque bounce issues can be resolved through:

• Immediate repayment of the cheque amount
• Re-issuance of a corrected cheque (for technical errors)
• Mutual settlement between parties
• Legal response through a notice reply

Issuance of Cheque Bounce Notice

When a cheque bounces due to insufficient funds, the payee must issue a cheque bounce notice within 30 days of receiving the bank's return memo.

• The drawer gets 15 days from receiving the notice to pay the cheque amount.
• If payment is not made, a cheque bounce case can be filed within 30 days after the 15-day period ends.
• The notice must mention the exact cheque amount, as any error can make it invalid.

A cheque bounce notice cannot be issued for gifts, donations, or other non-legally enforceable obligations.

Reply for Cheque Bounce Notice

The drawer may reply to a cheque bounce notice to avoid further legal proceedings. 

• Reply to the cheque bounce notice, preferably with legal assistance, explaining the transaction or providing proof of payment.
• The notice must mention the exact cheque amount. Any mismatch can make it invalid.
• If the drawer does not reply or pay within 15 days, the payee can file a cheque bounce case in court.

Format

A reply to a cheque bounce notice has no prescribed format, but it should include the following details:

• Address the reply to the legal notice to the lawyer of the drawee.
• Drawer's description, name, and address.
• Facts of the issue: date of issue, cheque-return memo, etc.
• Rebuttal of the allegations made against drawer.
• Refrain from admitting to any allegation against the drawer mentioned in the notice.
• Any complaints against the drawee of the cheque.
• A summary of the defence against the allegations mentioned in the legal notice for cheque bounce.
• The reply to any legal notice must be sent on a lawyer’s letterhead.

How to Handle a Cheque Bounce Case?

After 15 days from the issuance of the cheque bounce notice, the payee can initiate legal action against the drawer if he/she does not receive the cheque payment. The payee should register a complaint under Section 138 of the Act. 

Jurisdiction of the Magistrate for Filing Cheque Bounce Suit

The court for a cheque bounce case is determined by the bank branch involved, not by where the cheque was issued or the notice was served.

• If the cheque was deposited into the payee's bank account, the cheque bounce complaint must be filed where the payee's bank branch is located.
• If the cheque was presented directly at the bank, the complaint must be filed where the drawer's bank branch is located.

The case is heard by a Metropolitan Magistrate in metro cities and a Judicial Magistrate in other areas.

Process of Cheque Bounce Case

The process of a cheque bounce suit is as follows:

Step 1: File a cheque bounce complaint before the Magistrate after the 15-day notice period ends.

Step 2: The Magistrate reviews the complaint and issues a summons to the drawer, if satisfied.

Step 3: The drawer appears before the court and accepts or denies the allegations.

Step 4: Both parties present their evidence and arguments.

Step 5: If the drawer is found guilty, the court passes a conviction and imposes the applicable punishment.

Punishment for Cheque Bounce Case

Under Section 138 of the Negotiable Instruments Act, 1881, cheque bounce due to insufficient funds is a criminal offence. The punishment may include:

• Imprisonment for up to two years,
• A fine of up to twice the cheque amount, or
• Both.

Civil Proceedings for Cheque Bounce

Apart from criminal proceedings, the payee may also file a civil suit to recover the cheque amount. However, in a civil suit, no cheque bounce notice is required. Only a legal notice for recovery is required. Civil action does not impose punishment; it ensures repayment only.

Company Liability in Cheque Bounce Cases

Under Section 141 of the Negotiable Instruments Act, a cheque bounce case can be filed against a company if its cheque is dishonoured due to insufficient funds. 

The company, along with the directors and officials responsible for its business at the time of the offence, may be held liable.

Note: Section 148 allows the appellate court to order the convicted person to deposit at least 20% of the fine or compensation while the appeal is pending.

Relief for the Drawer

If the drawer pays the cheque amount within 15 days of receiving the cheque bounce notice, no offence is deemed to have been committed under Section 138, and legal proceedings cannot continue.

Cheque Bounce Charges

Banks levy penalties when a cheque is dishonoured due to insufficient funds or other reasons. 

These cheque bounce charges usually range from ₹100 to ₹750, depending on the bank and the cheque amount. Charges may apply to both the drawer (issuer) and the payee (recipient). In addition, legal fees may arise if the matter proceeds to court.

When a cheque is returned unpaid, the payee should immediately inform the drawer. The drawer must then take corrective action, such as:

• Resubmitting the cheque if the issue was a mistake (e.g., signature mismatch or overwriting).
• Ensuring sufficient funds and re-issuing payment if the dishonour was due to insufficient balance.
• If the drawer fails to resolve the issue, the payee may send a cheque bounce notice and initiate a criminal case under Section 138 of the NI Act to recover the amount.

Maintaining sufficient funds and ensuring accurate cheque details is the simplest way to avoid penalties, notices, and criminal proceedings.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice. It should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

Related Articles:
1. Dishonoured Cheque
2. Cheque Bounce Notice Format