Received a bounced cheque? Here is what you can legally do within 15 days, including step-by-step legal action, and key comparisons to other countries.
Imagine this: you have completed a job, provided a service, or sold goods, and in return, you have been handed a cheque. But when you deposit it, the bank sends it back unpaid. Cheque dishonour is not just frustrating; it is a serious legal issue with clear remedies, but only if you act within 15 days.
Cheque bounce cases are alarmingly common in India. According to this Report by the Times of India (see here), over 43 lakh cheque bounce cases are currently pending in various Indian courts. Further, as per a Report released by the Ministry of Law & Justice on 3rd December, 2002 (see here), in Delhi and Mumbai, 62,162 and 64,083 cases are pending for dishonoured cheques.
Such staggering numbers highlight how critical it is for both individuals and businesses to understand their legal rights and timelines when dealing with a bounced cheque. The law provides a narrow but powerful 15-day window to initiate action, and missing it could mean forfeiting your right to recover your money through criminal proceedings.
This article offers a comprehensive guide to understanding what constitutes a cheque bounce, the step-by-step legal recourse available, and how India’s approach compares with other jurisdictions.
Understanding Cheque Bounce: A Quick Overview
What is a Bounced Cheque?
A bounced cheque occurs when a cheque cannot be cashed due to a lack of funds in the drawer’s bank account, wrong details, or account closure. It is then presented back to the depositor (payee) with a dishonour memo outlining rejection reasons.
This dishonour is more than just a financial inconvenience; under specific circumstances, it becomes a punishable offense under Indian law.
Common Reasons Why Cheques Bounce
Cheque bounce incidents usually stem from one or more of the following causes:
- Insufficient funds in the drawer’s bank account at the time of presentation.
- Signature mismatch between the cheque and bank records.
- Incorrect or overwritten date, rendering the cheque legally invalid.
- Post-dated cheque presented too early, violating presentation norms.
- Cheque issued from a dormant, frozen, or closed account, often suggesting fraudulent intent.
Each of these reasons, if proven, can empower the payee to take legal action, but only within a defined timeline and with the proper documentation.
Legal Definition Under the Negotiable Instruments Act, 1881
Section 138 of the Negotiable Instruments Act, 1881 () governs the offence of cheque dishonour in India. The law outlines that a cheque is considered “bounced”, and the offense becomes criminal, when:
- The cheque is returned by the bank due to insufficient funds, or
- The amount exceeds the arrangement with the bank, or
- The cheque is presented within its validity period, and
- The payee issues a written legal notice within 30 days of dishonour, and
- The drawer fails to make payment within 15 days of receiving the notice.
Once the above-mentioned conditions are satisfied, the payee can proceed to file a criminal complaint under Section 138, which can result in fines, imprisonment, or both for the drawer.
Legal Implications of a Bounced Cheque in India
Section 138: Cheque Dishonour as a Criminal Offence
Under the laws of India, issuing a cheque that bounces can land the drawer in criminal court, with a penalty that may include up to two years of imprisonment or a fine twice the cheque amount, or both.
Civil vs. Criminal Liability
| Civil Remedy | Criminal Remedy |
| The payee can sue for recovery of the due amount. The primary civil remedy available is a Summary Suit under Order 37 of the Code of Civil Procedure, 1908 (CPC). | File a complaint under Section 138 of the Negotiable Instruments Act, 1881. This will lead to criminal charges. |
Key Judicial Precedent
One of the landmark rulings in the realm of cheque bounce jurisprudence is the Supreme Court’s decision in Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129. This case significantly impacted the legal landscape by addressing the issue of jurisdiction,i.e., where a cheque bounce case can be validly filed.
Before this ruling, complainants often filed cases in locations convenient to them, sometimes far from where the cheque was actually dishonoured. This led to logistical challenges for the accused and delays in court proceedings.
What the Supreme Court Held:
The Supreme Court ruled that:
“Once the cause of action accrues to the complainant, the jurisdiction of the Court to try the case will be determined by reference to the place where the cheque is dishonoured.”
This meant:
- If the drawer’s bank (where the cheque account exists) returned the cheque unpaid, the complaint must be filed in that jurisdiction, not where the cheque was handed over or received.
- Filing a case in the payee’s city or business location was no longer valid.
Why This Ruling Was Important:
- Ensured fairness: It protected the drawer from being dragged into courts across the country, especially in cases of multiple transactions or national businesses.
- Defined clear procedural boundaries: It emphasized the importance of jurisdiction as per criminal procedure and prevented misuse of the law for harassment.
- Reduced forum shopping: Complainants could no longer choose a court to gain tactical advantage.
Aftermath and Partial Reversal
The ruling was later partially modified by the Negotiable Instruments (Amendment) Act, 2015, which restored some balance by allowing the place of deposit of the cheque (i.e., the payee’s bank) to determine jurisdiction. This was done to protect the interest of payees, especially small businesses and individuals, who otherwise had to file cases in distant cities.
Civil Remedy for Cheque Dishonour
The primary civil remedy available to a payee in India is a Summary Suit under Order XXXVII of the Code of Civil Procedure, 1908 (CPC).
What is a Summary Suit?
A summary suit is a special, fast-track procedure designed to deal with cases where a defendant has no real defense and is simply trying to delay payment of a clear, undisputed debt. The main objective is to prevent frivolous defenses and ensure the quick disposal of cases involving liquid debts, such as those arising from a bounced cheque.
Why a Payee Might Choose a Summary Suit?
- It is a much faster process than a regular civil suit. The entire procedure is designed to bypass the lengthy trial process, especially when the defendant has no real defense.
- The primary goal is the recovery of the money owed, along with interest and legal costs. Unlike a criminal case under Section 138, which can result in a fine that goes to the state, a summary suit ensures the money goes directly to the payee.
- A payee can pursue both a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 and a civil summary suit simultaneously. The two are distinct and independent remedies. The criminal case acts as a deterrent, while the civil suit focuses on monetary recovery.
Your 15-Day Legal Window: What It Means
The Importance of the 15-Day Timeline
After receiving a dishonour memo from the bank, the payee has 30 days to issue a legal notice. The drawer has 15 days from receipt to make the payment. If they fail, you can initiate legal proceedings.
What Qualifies as a “Legal Notice”?
A legal notice must:
- Be written by the payee or their lawyer
- Specify the cheque number, amount, and date
- Demand payment within 15 days
- Be sent via registered post or courier with proof of delivery
Step-by-Step Legal Action You Can Take
Step 1: Get the Memo from the Bank
Collect the bank’s return memo, which is essential to prove the cheque has bounced.
Step 2: Send a Legal Notice to the Drawer
Send a formal notice within 30 days, giving the drawer 15 days to respond or pay the due amount.
Step 3: File a Complaint Under Section 138
If no payment is made:
- File a complaint before a Judicial Magistrate within one month
- Submit the cheque, bank memo, legal notice, and delivery proof
What Happens After You File the Complaint?
Once you’ve taken the necessary legal steps, including sending a formal legal notice and allowing the 15-day period for repayment to lapse, the next move is to file a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. This begins the formal court proceedings.
Summons and Court Proceedings
After you file the complaint in the appropriate jurisdictional Magistrate’s court:
- Preliminary Scrutiny by the Magistrate
The court first examines your complaint and supporting documents, including:
- Copy of the bounced cheque
- Bank return memo
- Legal notice
- Proof of service of notice
- Copy of the bounced cheque
- If everything is in order, the Magistrate will take cognizance of the offence under Section 138.
- Issuance of Summons
The Magistrate then issues a summons to the accused (the cheque issuer), directing them to appear before the court on a specific date. This is the beginning of the criminal trial process. - Non-Appearance and Warrants
If the accused:
- Ignores the summons, or
- Evades appearance without valid reason,
- Ignores the summons, or
the court may escalate the matter by issuing a bailable warrant, and if that too fails, a non-bailable warrant (NBW) may follow. This compels appearance and underlines the seriousness of the offense.
- Pleading and Trial
Once the accused appears:
- The court records their plea, guilty or not guilty.
- If not guilty, the case proceeds to the evidence stage, where both parties present their case.
- Witnesses, including the complainant, may be called to testify under oath.
- The court records their plea, guilty or not guilty.
- Final Arguments and Judgment
After hearing both sides, the Magistrate delivers a verdict, either convicting or acquitting the accused.
Probable Outcomes and Penalties for the Drawer
Depending on the strength of evidence, conduct of the parties, and intent demonstrated during proceedings, the following outcomes are possible:
1. Conviction: If the court finds the drawer guilty:
- Imprisonment up to two years
- Fine up to twice the cheque amount
Or both
This penalty serves as both a deterrent and a mechanism to enforce financial accountability.
2. Out-of-Court Settlement (Compounding): At any stage during the trial, with the court’s consent, the parties can settle the matter:
- The drawer agrees to pay the amount due (often with interest or penalty).
- The complainant withdraws the complaint.
- The case is marked as “compounded” and closed.
This is encouraged in cheque bounce matters to ease the burden on courts and promote amicable resolution.
3. Case Withdrawal by the Complainant: If the complainant receives payment or decides not to pursue the case:
- They may apply to withdraw the complaint.
- However, court approval is mandatory, especially after the trial has commenced.
- The Magistrate ensures that the withdrawal is voluntary and not under duress or coercion.
Comparative Look: India vs. Other Countries
Legal Stance on Bounced Cheques
| Country | Offense Type | Penalty |
| India | Criminal | Jail up to 2 years or double the cheque amount |
| USA | Civil | Penalties, overdraft fees, civil lawsuit |
| UAE | Criminal (recently softened) | Fine up to AED 10,000 |
| UK | Civil | Civil lawsuit only |
Protective Measures for Businesses and Individuals
To reduce the risk of a cheque bouncing and safeguard your financial interests, it’s essential to take proactive legal and financial steps. Whether you’re a business owner, freelancer, or service provider, these measures can significantly bolster your position if a dispute arises.
Drafting Stronger Agreements
A well-drafted agreement is your first line of defense. Ensure that every transaction, especially involving delayed or credit-based payments, is backed by a written contract that includes the following clauses:
- Post-Dated Cheque Clauses: Clearly state that the payer must issue a post-dated cheque for the due amount as a payment guarantee.
- Arbitration Clauses: Include a clause for resolving payment disputes through arbitration. This allows for quicker, less expensive resolution without going to court.
- Clear Payment Terms: Define payment timelines, penalties for delays, and consequences if a cheque is dishonoured. This removes any grey areas and strengthens your legal position.
These clauses not only protect you but also signal to the other party that you are legally prepared and professional, often preventing casual defaults.
Insisting on Post-Dated Cheques vs. Electronic Transfers
When accepting payments, the mode matters. Here’s a comparison of the two most common approaches:
| Mode | Pros | Cons |
| Post-Dated Cheque | Offers legal recourse under Section 138 of the Negotiable Instruments Act if the cheque bounces | Subject to dishonour; involves legal follow-up and waiting period |
| NEFT/RTGS/UPI | Immediate transfer; secure and paperless | No Section 138 protection; no automatic legal penalty if payment is delayed or reversed |
Recommendation: For high-value or credit-based transactions, consider collecting a post-dated cheque as a security instrument, even if the actual payment is made via digital modes. This provides an additional layer of legal protection.
FAQs on Bounced Cheque Legal Procedures
1. What Happens if I Miss the 15-Day Notice Period?
You lose the right to file a Section 138 complaint but can still pursue civil recovery.
2. Can I Still Recover My Money if the Drawer is Bankrupt?
Yes, through Insolvency & Bankruptcy Code (IBC), though it’s more complex.
3. Is There a Minimum Cheque Amount Required to File a Case?
No. Any amount is valid, but practicality and cost should be considered.
4. Can I Send the Legal Notice by Email or WhatsApp?
Courts now accept WhatsApp and email notices, provided delivery can be proven.
5. How Much Does It Cost to File a Section 138 Complaint?
Legal fees vary; ₹2,000–₹10,000+ depending on the advocate and court.
6. Can I Withdraw the Case After Filing It?
Yes, with court approval, especially if the drawer agrees to pay the amount.
YLCC would like to thank Nikunj Arora for his valuable insights into this article.
