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Cheque Bounce Law in India

Published on Tuesday, December 19, 2017

Meaning of Cheque

Cheque is a negotiable instrument, this is an order to drawee (bank) to pay a specific amount to payee (a person on which the cheque has been issued). A person who writes cheque is known as a drawer.
Cheques can be two types either order or bearer.
Meaning of Cheque
Note: Bank is drawee

Cheque Bounce

When drawers account does not have enough balance for the payment to the payee in this case the bank refused to pay the amount to the payee. This situation is known as dishonoured of cheque.
cheque bounced


  • When Signature is mismatching 
  • Overwriting over the cheque 
  • When cheque is presented after 3months 
  • Account was closed 
  • Insufficient balance in the account 
  • If account holder stops payment of 
  • If words and figures mentioned on the cheque are different 
  • If company seal is missing 
  • Account number is not matched 
  • Use of two different pens ink 
  • In case of joint account where both signatures are required, only one sign is there 
  • Death of the customer 
  • On the order of the garnishee 
  • Crossed cheque 
  • When a cheque is issued against the rules of trust 
  • Alteration in cheque 
  • When cheque presented to the wrong branch by the payee 
  • Crossing limit of overdraft 

What Happened When Cheque Dishonored

  • When cheques get dishonoured by the bank then the bank will return the dishonoured cheque to the bank along with cheque return memo. 
  • Cheque return memo is a document which is issued by bank when cheque gets dishonoured. Cheque return memo is necessary because this memo mention the reason for cheque bounce 
  • After receiving the bounced cheque and cheque return memo payee can file complaint against drawer, and if payee wants to complain against drawer then payee should have to file complaint within the 30 days after receiving the bounced cheque and cheques return memo. 
  • But if cheque given by drawer is a kind of gift/ does liable to pay any liability to payee in that case the payee cannot sue to the drawer. 

Legal Action

  • According to the Negotiable Act 1881 section 138, the dishonour of a cheque is a punishable offence and drawer is punishable by monetary penalty or imprisonment up to two years or both. 
  • If payee desires to take a legal action against drawer then payee has to send a legal notice to the drawer within 30 days after receiving cheque return memo and dishonoured cheque from the bank. 
  • According to the act, after receiving the notice from the payee drawer is liable to pay specific amount to the payee within 15 days after receiving the notice. If drawer is not able to pay specific amount to the payee then payee can file a complaint to magistrate’s court within a month of the expiry of the notice period. 

Punishment and Penalty

  • After receiving the complaint the court will hear matter and if drawer found guilty the defaulter can be punished with monetary penalty and 2 years imprisonment. 
  • Bank can close the drawer account if drawer does the same mistake in future and can also stop the issue of the chequebook. 
cheque bounce penalty
Note: If drawer pays his liability to the payee within 15 days then no legal action will be taken against the drawer.

Amendment on 15 December 2017

  • The Union Cabinet amended Negotiable Instruments Act, 1881, to deal with the dishonour of cheques due to inadequate funds.
  • The amendment would enable courts to order interim compensation(part of cheque amount) to the payee of a cheque at the trial stage.
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