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Cheque Bounce

What Legal Action Can Be Taken for Cheque Bounce?

Almost all transactions involve the use of cheques, including loan repayment, wage payment, payment of bills and fees, etc. Banks handle and pass the vast majority of cheques every day. When there are insufficient funds, a cheque bounce occurs. In this blog, cheque bounce and its consequences are explained.

Latest Update: On 8 June 2020, the Finance Ministry announced the decriminalisation of 39 minor economic offences, as a part of the COVID-19 relief measures. Among others, such offences included dishonour of cheques or cheque bounce under Section 138 of the NI Act, of 1881. This section earlier levied criminal liability, punishable with imprisonment up to 2 years and/or a fine up to twice the cheque amount. Now lets discuss about the details on Legal Action Can Be Taken for Cheque Bounce.


A cheque bounce is actually considered an act of fraud when there is not enough money in the account holder. The bank must issue a return memo explaining why it rejected the cheque offered for payment due to insufficient funds. When this occurs, the payee of the cheque may send a notice of cheque bounce to the drawer requesting payment of the cheque amount.

The purpose of issuing a cheque is to obtain documentation of payment. Nevertheless, a lot of individuals continue to rely on cheques as a secure form of payment. 

What Is a Cheque Bounce?

Section 138 of the Negotiable Instruments Act, 1881 (“Act”) states that a cheque bounce is a punishable offence. You can be fined up to double the cheque value or imprisonment for up to two years in prison or both. A cheque will bounce when the payee gives it to the bank for clearance and the bank returns it with a memo stating that the account has insufficient funds.

Punishment for Cheque Bounce

The court will issue a summon and hold a hearing after receiving the complaint along with an affidavit and paper trail. If found guilty, the defaulter faces a financial fine that could be twice the amount of the cheque, a sentence that might be up to two years in jail, or even both. For repeated instances of bounced cheques, the bank also has the power to terminate the ability to use a chequebook and close the account.

If the drawer pays the cheque’s balance within 15 days of the day they received the notice, they have not broken any laws. If not, the payee has one month from the day the notice’s 15-day deadline expired to file a complaint in the jurisdictional magistrate’s court.

Legal Actions for a Cheque Bounce Case

Cheque bounces are punishable under Section 138 of the Act’s crime code by up to two years in prison, a fine that can reach double the value of the cheque, or both.

The court can sue the drawer for failing to pay the amount on the cheque. The payee is not permitted to issue a notification of cheque bounce when a civil lawsuit has been filed. Only legal notice may be given by the payee in order to reclaim the money.

Cheques that bounce due to inadequate funds are punishable criminally. The civil suit merely allows for the recovery of the cheque bounce amount and does not penalise the drawer.

Reasons for Cheque Bounce

A cheque bounce can occur due to many reasons. Some of the reasons are mentioned below.

  • A cheque bounces due to overwriting if the drawer’s signature, the amount of the cheque, or any other statement has been altered.
  • When a firm issues a cheque and it does not have the company’s seal on it.
  • The account number is wrong.
  • There is just one sign in a joint account cheque when both signatures are needed for it.
  • A cheque will bounce if it is damaged or stained and the details are obscured.
  • More than three months have passed since the cheque was presented.
  • If the account was terminated
  • If there is not enough money in the account.

Consequences of a Cheque Bounce

  1. It Affects Your CIBIL Score – A person’s credit appropriateness and the likelihood of timely loan payback are assessed by banks and non-banking financial institutions (NBFIs) using their CIBIL score, a three-digit figure that ranges from 300 to 900. The impact of a bounced cheque might be so harmful to the accused’s CIBIL score that no financial institution may ever again provide him with a loan.
  2. Penalty Charges – The drawer (accused) and the drawee (complainant) are subject to penalties by their respective banks in the event that a cheque bounces due to insufficient funds in the bank account, irregularities in the signatures or one of the other technical issues previously stated.
  3. Criminal Action Charges –  If the drawee (complainant) does not get the payment that was initially promised, a dishonoured cheque will very certainly result in both civil and criminal action against the drawer.

Hiring a Lawyer

One way to be sure you are heading in the correct direction during your cheque bounce case. You can hire a lawyer to file or defend your cheque bounce case. A lawyer will nudge you in the right direction. They will handle all the paperwork which gives you more time to attend to your own personal work and business.

An experienced lawyer can give you professional guidance on how to manage your cheque bounce issue. A cheque bounce lawyer is knowledgeable about the regulations and can assist you in avoiding serious errors that could endanger your finances or your legal standing and necessitate further legal action to correct.

A lawyer’s duties include managing all paperwork so that they have enough time to focus on their client’s business and other issues in addition to gathering the necessary information for their case regarding a bounced cheque.

New Cheque Bounce Rule

As per a notice released by the Reserve Bank of India (RBI) in early August 2021, individuals heavily relying on cheques or planning to use them must maintain a minimum bank balance to avoid cheque bouncing. Failure to uphold this balance may result in penalties for the customer issuing the cheque. Additionally, the RBI introduced a 24/7 operational schedule for the National Automated Clearing House (NACH), applicable to all national and private banks. This rule aims to expedite and streamline cheque clearing processes. Notably, with NACH operational every day, including Sundays, cheque processing and clearance can occur throughout the week.  Also, the recent Supreme Court ruling on cheque bounce highlights that Section 138 deems the dishonour of a cheque a criminal offence, attracting penalties of imprisonment for up to two years or a fine double the cheque amount. In legal proceedings, the individual issuing the cheque might have already made a partial payment towards the debt and possibly provided a postdated cheque as collateral.

Circumstances of Cheque Bounce

Insufficient Account Balance

 When the drawer’s account lacks sufficient funds to cover the cheque amount, the bank rejects the cheque, issuing a memo citing insufficient funds.

Expired Validity of Cheque

Cheques must be presented for payment within three months of issuance. If not presented within this period, the cheque expires, and submitting an expired cheque results in a bounce.


Any overwriting on the cheque, whether in the drawer’s signature, cheque amount, or any other statement, leads to the cheque bouncing.

Damaged Cheque

A cheque that is damaged or disfigured, making details unclear, marked, or stained, will be rejected, causing the cheque to bounce.

Signature Mismatch

If the drawer’s signature is unclear, absent, or does not match the bank’s records, the cheque bounces due to a signature mismatch.

Mismatch of Amounts or Digits

A cheque is bounced if the amount mentioned in words and figures does not align, resulting in a mismatch between the two representations.

Remedies Against Cheque Bounce

Resubmission of Cheque

When a cheque bounces due to issues like overwriting, signature mismatch, mismatch of figures and words, or a damaged cheque, the payee has the option to request the drawer to submit a replacement cheque to rectify the error. If the drawer refuses to provide a new cheque, the payee can take legal action to recover the cheque amount.

Cheque Bounce Notice Under Section 138

A Cheque Bounce Notice is invoked under Section 138 of the Negotiable Instruments Act when a cheque bounces due to insufficient funds. However, if the bounce occurs for reasons other than insufficient funds, the payee can demand the resubmission of the cheque.

Issuance of Cheque Bounce Notice

When a cheque bounces due to insufficient funds, the initial step is to issue a written cheque bounce notice by post under the Negotiable Instruments Act. This notice must be sent within 30 days of the bank’s intimation of the insufficient funds issue. After issuing the notice, the payee grants the drawer 15 days to settle the cheque amount. If payment is not received within this period, legal action can be initiated within 30 days thereafter.

Exception to Cheque Bounce Notice

A cheque bounce notice cannot be issued if the cheque was issued for purposes like a donation, gift, or any other non-legally enforceable obligation. To qualify as an offence under the Act, the cheque must be issued to discharge a legally enforceable liability or debt.


According to RBI regulations, banks may refuse to give any customer chequebooks if they have been charged at least four times for cheque bounces totaling more than Rs. 1 crore. Additionally, the bank has every right to send you a legal notice and take money from your active account if the cheque that bounced was issued as an EMI for loan repayment. 

Legal consequences can be severe if you don’t comply with the rules. Hence it is necessary to make sure that your cheque does not bounce.


Can I take legal action if the cheque is bounced?

Yes, you can take legal action, including filing a case under Section 138 of the Negotiable Instruments Act.

What is the new rule of cheque bounce case?

The primary regulating body for Indian banks is the Reserve Bank of India. RBI frequently introduces new regulations to streamline India's banking industry and offer ease to both banks and consumers. Here are a few new cheque bounce regulations in India that may have an indirect impact on unsuspecting consumers.

Can police take action on cheque bounce?

When a Cheque bounces and non-bailable warrants are issued, the police become involved because the defendant—the person who should be paying the complainant—is trying to evade the court. Police officials are necessary in order to guarantee the defendant's presence throughout the hearings in such a case

What is the legal notice against a bounced cheque?

The cheque must be utilised to fulfil a financial obligation. It should be issued by the payee within a validity period of three months. Upon presentation, the bank scrutinises the cheque and, if the funds are insufficient, the cheque is returned. A notice must be served to the cheque issuer within 30 days from the cheque bounce, urging them to arrange an alternative payment within 15 days. Failure to comply may result in legal action under Section 138 of the Negotiable Instruments Act.

Can I escape from cheque bounce case?

To avoid being involved in a cheque bounce case, consider the following steps:

  • Settle the debt with the relevant individual
  • Ensure there are sufficient funds in your account before issuing a cheque to someone else
  • Address and rectify any issues leading to cheque bounce
  • If funds are insufficient, make arrangements to correct the balance in your account
  • Avoid making cash payments instead of honouring cheque transactions.

Can I send cheque bounce notice without a lawyer?

No, it's highly recommended to get a lawyer's support for sending a legal notice.


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