Top 10 Powerful Facts About Cheque Bounces

Cheque bounce, also known as cheque dishonour, is one of the most common financial offenses in India and globally. Governed under Section 138 of the Negotiable Instruments Act, 1881, it holds significant legal consequences for the drawer of the cheque. Whether you’re a business owner, a service provider, or an individual receiving payments, understanding how cheque bounce laws work is crucial for protecting your interests.

This article dives deep into the top 10 powerful facts about cheque bounces, unraveling key legal insights, common defenses, and critical procedures.

Fact 1: Cheque Bounce is a Criminal Offense in India

A bounced cheque is not merely a civil dispute — it is a criminal offense under Section 138 of the Negotiable Instruments Act, 1881. The law prescribes:

Up to 2 years imprisonment, or
A fine up to twice the cheque amount, or both.

This transforms a payment failure into a serious legal issue, giving the payee strong legal recourse.

Legal Provision:

Section 138 states that if a cheque is returned by the bank due to insufficient funds or because it exceeds the arrangement, the drawer can face legal prosecution.

Fact 2: Legal Action Requires a Written Notice

Before filing a cheque bounce case, the payee must:

Send a legal notice within 30 days of receiving the cheque return memo.
Wait for 15 days post-delivery for the drawer to make the payment.

If the payment is not made within this window, a criminal complaint can be filed in court.

Key Case:

K. Bhaskaran v. Sankaran Vaidhyan Balan (1999)
The Supreme Court ruled that notice is mandatory before initiating proceedings under Section 138.

Fact 3: Cheque Must Be Issued for a Legally Enforceable Debt

For Section 138 to apply, the cheque must be issued:

Against a legally enforceable debt or liability.

If the cheque was issued as a gift or donation, the drawer cannot be prosecuted under Section 138.

Legal Insight:
Courts often scrutinize the purpose of the cheque. If the drawer can prove it was not in discharge of a liability, the case may fail.

Fact 4: Jurisdiction Lies Where the Payee’s Bank Is Located

Following the 2015 amendment to the NI Act:

The jurisdiction for cheque bounce cases lies where the payee’s bank branch is located, not where the drawer’s bank is.

This change was brought to facilitate faster redressal and avoid forum shopping.

Legal Source:

The Negotiable Instruments (Amendment) Act, 2015

Fact 5: Defense of Stop Payment Is Not Always Valid

If someone stops payment on a cheque, it does not automatically absolve them from liability.

Courts examine whether:

The cheque was issued for a valid debt.
The drawer had sufficient funds.
The drawer gave instructions with malicious intent.

Landmark Case:

M.M.T.C. Ltd. v. Medchl Chemicals (2002)
The Supreme Court held that stop payment could still amount to an offense under Section 138 if the basic ingredients are met.

Fact 6: Post-Dated Cheques Are Legally Valid

Post-dated cheques, often used as security, are valid and enforceable once the due date arrives.

Even if the drawer claims the cheque was given as security, courts focus on:

Whether it was issued against a legally enforceable debt.
Whether it was presented after the due date.

If both apply, Section 138 is triggered.

Fact 7: Limitation Periods Are Crucial

Timelines play a vital role in cheque bounce cases. Here’s a quick reference:

Event	Time Limit
Receipt of Cheque Return Memo	Within 30 days to send notice
From Notice Delivery	15 days for drawer to pay
After 15 Days	Complaint to be filed within 1 month

If you miss any of these deadlines, your case may be dismissed on technical grounds.

Fact 8: Cheque Bounce Can Impact Your Credit and Reputation

Besides legal penalties, a cheque bounce can:

Damage your credit score.
Harm business relationships.
Affect your reputation in financial markets.

In business environments, habitual cheque bounce offenders may face blacklisting or financial scrutiny.

Fact 9: Settlement Is Possible Even After Case Filing

The law encourages settlement and compounding of cheque bounce offenses. You can:

Resolve the matter even after filing a case.
File a joint petition for compounding under Section 147 of the NI Act.

Advantage:
It avoids prolonged litigation and offers a mutually agreeable resolution.

Key Case:

Damodar S. Prabhu v. Sayed Babalal (2010)
The Supreme Court laid down guidelines for compounding of offences under Section 138.

Fact 10: Corporate Entities Can Also Be Prosecuted

If a company issues a bounced cheque, the law permits prosecution of:

The company, and
All persons in charge of its day-to-day affairs at the time.

However, independent directors or passive shareholders are generally exempt unless involvement is proven.

Legal Reference:
Section 141 of the NI Act specifies how companies and their officials can be held liable.

Additional Tips to Avoid Cheque Bounce Cases

Maintain adequate funds in your account.
Keep records of all cheque transactions.
Use UPI or bank transfers for legally sensitive payments.
Don’t issue blank cheques or those without dates/amounts.
Set reminders for post-dated cheques.

FAQs on Cheque Bounce Cases

Q1: Can a bounced cheque case be withdrawn after notice is sent?
Yes, if the drawer makes the payment during the 15-day notice period.

Q2: Can I file a civil suit along with a criminal case?
Yes. A civil suit for recovery and a criminal case under Section 138 can go hand in hand.

Q3: What are the costs involved in filing a cheque bounce case?
It varies, but generally includes lawyer fees and minor court fees.

Q4: Is electronic cheque bounce also covered under Section 138?
Yes. Even digital cheque clearing mechanisms are included.

Q5: Can a cheque bounce case be filed for a time-barred debt?
No. The underlying liability must still be within the limitation period (typically 3 years).

Conclusion

Cheque bounce cases carry serious implications for both the drawer and payee. From criminal penalties to financial losses, the legal system in India provides robust protection for the aggrieved party while ensuring fair opportunities for defense. If you’re dealing with a cheque bounce issue, knowing these 10 powerful facts can help you navigate the situation with confidence.

Sources & Legal References

The Negotiable Instruments Act, 1881 – https://legislative.gov.in
Section 138 and 147 NI Act – https://indiacode.nic.in
K. Bhaskaran v. Sankaran Vaidhyan Balan (1999) 7 SCC 510
M.M.T.C. Ltd. v. Medchl Chemicals (2002) 1 SCC 234
Damodar S. Prabhu v. Sayed Babalal (2010) 5 SCC 663
RBI Guidelines – https://www.rbi.org.in

Top 10 Powerful Facts About Cheque Bounces in India