Beware of bounced cheques!

By | October 17, 2014



Gone are the days when you could issue a cheque with least regard to the balance in your account or other details like your signature etc. Dishonor of cheques issued by a payer is  offence under the law. Among many reasons under which, a cheque could be dishonored like mismatch in signature, or date not being valid, most common one is insufficient funds in the account. Cases arising due to dishonor of cheques are topping the list of all litigations in India. According to Supreme Court the number of cases is as high as 40 lakh.

Let’s try and understand what would be the implications of a dishonored cheque:

What classifies as a dishonored cheque

Any cheque is issued with an intention of making a payment by the drawer to the drawee. Any reason which prevents the payee from encashing or receiving the intended payment may amount to dishonoring that commitment.  A cheque is said to be dishonored when the bank of the payer refuses to make payment to the payee of the cheque. The reasons could be

o   Insufficient funds in the account of the payer

o   Mismatch in signature

o   Omissions, deletions or overwriting on cheques without authentication

o   Expired validity of the cheque

o   Post dated cheque

What are the consequences of a dishonored cheque?

Dishonor of cheque is a criminal offence under the provisions of Indian Penal Code as well as the Indian Negotiable Instruments Act.

Sec 417 and 420 of Indian Penal Code(IPC) 1960 : The drawer of the cheque can be prosecuted under the mentioned sections of Indian Penal Code and appropriate punishment may be handed out. However, to apply this, circumstances under which the dishonor has happened holds importance and the same has to be effectively established. A case of cheating has to be proven.

Section 138 of Negotiable Instruments Act, 1881 :  A cheque being a negotiable instrument is governed under the clauses of Negotiable Instruments Act too. A criminal liability can be established under this section too. Here the drawer of a dishonored cheque may get a jail term of 2 years or fine that may amount up to double the amount of the cheque or both.

How do I proceed further if a cheque that I present is dishonored?


Many of them think that if a cheque is dishonored you can straight away go the legal way and get back the amount that was due to you. However, it is not that simple. A procedure is laid down in place that needs to be followed.

Once a cheque is dishonored the bank of the drawee gives to the banker of the drawer a Cheque Return Memo with reason for the nonpayment. The bank of the drawee then gives the cheque and the Memo to the drawee (payee). If the payee desires, the cheque can be resubmitted within 3 months from the date of the cheque, if he has sufficient reason to believe that the cheque would not be dishonored this time. Or he could proceed the legal way.

The legal way can be taken only in cases the cheque was drawn to discharge a payment or a debt. There are many instances when we issue cheques for some donations or gifts, in those cases the drawee cannot proceed legally against the drawer of the cheque. Also the legal recourse is available under Sec 138 of Negotiable Instruments Act when the dishonor has been due to insufficiency of funds or mismatch in signature. When there has been a dishonor due to cases such as a post dated cheque, being presented earlier etc, the legal way cannot be explored.

There is a specified time frame for filing the complaint after the dishonor. Within 30 days of the receipt of Cheque Return Memo, a legal notice is to be sent to the defaulter with all pertinent details of the transaction like the date of presentment, reason specified by the bank, the date of subsequent dishonoring if any. After the receipt of notice, the drawer of the cheque is bound to make a payment within 30 days of receiving the notice. In the event of failure to do so, the drawee of the cheque can file a criminal complaint at a magistrates’ court within a period of 30 days of the expiry of the notice period.

Summonses are then issued to the drawer of the cheque and the case is heard and if found guilty punishment may be handed out. The defaulter then has recourse of appealing in the Sessions court within one month of the judgment.  Both the parties can at any time settle for a out-of-court settlement.

Similar steps are followed when the case is filed under Sec 420 of IPC, however that route is taken when a clear case of cheating is in light.

Other implications for the defaulter


In addition to imprisonment and hefty fine that may be imposed on him, the defaulter may also stand to lose his cheque book facility from his bank. The bank can also close his account for repeat offences. However as per RBI guidelines, this step can be taken by bank only when the number of such defaults exceed 4 times for cheques of over Rs 1 crore.


Latest amendments to the law


In accordance to a recent judgment by a bench of Supreme Court judges, the case can filed only where the branch on which the cheque was drawn is situated.  For Ex: If payment for some service is done in Bangalore by a person by giving a Mumbai cheque and it bounces, the payee would have to file a suit under Sec 138 in Mumbai and not in Bangalore. However cases under IPC or CrPC can be filed at the place of transaction.

Also due to increasing number of litigations under this Act, lawmakers are looking to amend the law. It is intended to settle such cases with the aid of an arbitrator, reconciliation or settlement by Lok Adalat.


How do you protect yourself when you issue a cheque


A cheque cannot be issued recklessly. The drawer of the cheque has to make sure that there are sufficient funds maintained in his account when the cheque is presented. He also needs to take adequate care that cancellations or over writing is authenticated, or rather offer a fresh cheque. Preferably crossed and account payee cheques should be issued to avoid cases of forgery on the cheque. If you are one among those using different signatures for different documents, keep a track of your signature when it comes to bank accounts and use the right one.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit for the latest rates/offers.

4 thoughts on “Beware of bounced cheques!

  1. d.bharath kumar

    wondraful short explanation on cheques usages and returns and its legal concequencies in summary.

    very good to understand easily in common laungauage by a common man too.

    1. Team BankBazaar

      Hi d.bharath kumar,

      Glad that this information was useful to you. Keep reading our blog for similar informative articles.

      Team BankBazaar

  2. altaf syed

    How much time it will take to complete prosecution of bounced cheque after a case is lodged. Will I get any compensation for the delay in payment due to bounced cheque

    1. Team BankBazaar

      Hi Altaf, The time taken for settling a case differs on a case to case basis. You can request for compensation when you are fighting your case.Cheers, Team BankBazaar


Leave a Reply

Your email address will not be published. Required fields are marked *