Cheque Bounce

What Legal Action Can Be Taken In Case Of A 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.


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.


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.

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