The Legal Consequences Of Bounced Cheques

By | October 26, 2017

Having a cheque bounce or be dishonoured due to insufficient funds is quite common in our country. But, what are the implications and legal consequences? Find out.

A cheque is a negotiable instrument in India and is normally valid for three months from its date. Bounced cheques are one of the most common offences in the country. There are over 40 lakh pending cases in the Supreme Court.

What is a bounced cheque?

A bounced cheque is a cheque which where the payment amount stated on it is not made and it is dishonoured.

A cheque can bounce for several reasons which include insufficient funds, a mismatch in the signature, stale cheques, or if there are corrections in the cheque without authentication. The bank collects a penalty from the defaulter when a cheque bounces.

The important point here is that when a cheque bounces, it is a criminal offence in India. Therefore, under the Negotiable Instruments Act, 1881, the issuer of a bounced cheque can be punished with a fine and/or a jail term.


What can be done in the case of a cheque bounce?

Almost every bank gives you a ‘cheque return memo’ along with the returned cheque stating the reason for the bounce. If you hold the cheque, you can inform the drawer about this and ask if it can be presented again to the bank within the 3 months period. However, this is not necessary.

If you want, you can send a legal notice to the defaulter within a period of 30 days from receiving the cheque return memo. The notice should contain all necessary facts of the matter, including the details of when the cheque was dishonoured. It is best to get this vetted by a lawyer just to ensure that all the necessary information is contained in the notice. The defaulter needs to make a fresh payment within a period of 15 days from the receipt of this notice.

However, if he/she still doesn’t make the payment within this time period, then you can file a complaint in the magistrate court. This case should be filed within a maximum period of 1 month from the date of expiry of the 15 days’ time period.

Remember, the complaint should be filed within the time frame specified. If this is not done, then the case will become time-barred and will not be entertained. When your case comes for hearing, the defaulter can be punished with a jail term of two years and/or a penalty which can be up to twice the cheque amount. The defaulter can appeal against the order within a period of 1 month of judgement.

Case 1: Bouncing of a rent cheque

In India, it is common practice for the landlord to take post-dated cheques from the tenant. In case a rent cheque bounces, the landlord can follow the above procedure to recover the dues from the tenant.

Sometimes, it may so happen that the tenant does not have the funds simply because the landlord did not drop the cheque at the expected time. Therefore, the landlord is bound to first inform the tenant and only then proceed with the legal process.

There may be another case where the tenant wishes to offset an amount from a particular month’s rent towards some expense he incurred on behalf of the landlord, which the latter refuses to pay. If there is a cheque bounce because of this, the criminal case will continue against the tenant till he is able to establish that there was a legitimate offset.

Additional Reading: Should I Buy A House Or Continue Staying On Rent?

Case 2: Check bounce for an EMI payment

When a cheque meant for an EMI payment on a loan is dishonoured, the bank can also file a case against the defaulter. However, banks do not do this as the first step.

Firstly, hefty penalties, loan default charges and cheque bounce charges are levied. These keep building up for every month of default and are added to the EMI amount. Also, the defaulter’s credit rating gets affected with every default made.

Wondering if your Credit Score has been affected by a cheque bounce made for your EMIs? You can check your Experian Credit Score for free by clicking here.

In case of secured loans like a Home Loan, banks also have the security as collateral. If the borrower does not make payments even after repeated reminders, the bank can give sufficient notice and auction the security to recover the dues.

Want to take a loan? First, calculate your EMI. Use our EMI Calculator to break down the numbers.

Case 3: Cheque bounce in a business transaction 

If you receive a cheque from a business debtor and it bounces, then you should follow the above procedure to recover your dues. In case of bounced cheques in business transactions, the added penalty would be the loss of face in business circles, affecting your reputation and business deals.

Considering the huge number of pending bounced cheque cases in the courts, the Government is mulling to amend the Negotiable Instruments Act which will restrict the payee from taking the defaulted person to court.

According to news reports, such a person who has defaulted in making the payment will not face a jail term and the cases will be handled only through arbitration and settlement by Lok Adalats. This proposal has come under criticism from the common man, as it is believed that this will only increase cases of payment default.

Tired of making cheque payments? Try other modes of payments. A Credit Card is convenient, cashless, and easy to carry.

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10 thoughts on “The Legal Consequences Of Bounced Cheques

  1. suchitra

    Dear sir

    I had given blank cheque to my father to pay property tax and for other payment.because i am working.due some bad understanding my father had presented cheque for rs.13,50,000/- and another cheque for Rs.15,00,000/- saying i am taken money from him.he has sent notice and case has lodge in the court,
    but he was not having more than Rs.3,00,000/- with him and also he not a IT payer.
    Please refer me what will happen and what to do.

    1. Team BankBazaar

      Hi Suchitra, While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you get legal counsel to sort this out. Cheers, Team BankBazaar

  2. Vishwas Lal

    I took the loan from Axis bank (personal loan/Unsecured one) in 2014 for 210000 i successfully paid the emi till july 2015 and unfortunately i lost my job and i was not able to make the payments and i also told the bank the reason of my non payments. Bank recently sent me a notice (summon) for cheque bouncing which was done in April 2016 and i wasnt aware of the fact that they used my security cheque. I recently got the job and also wrote the email to the bank that i can start paying my monthly emi by Dec’17 or else i will go with one time settlement however i didnt get the appropriate reply on the same. What should i do because i am also facing the divorce case issue and at the same time bank send the summon for 138. Please help.

    1. Sanesh Mathew

      Hi Vishwas Lal, Sorry to hear about your situation. While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help, but due to the specific nature of your question, we suggest that you get in touch with your legal counsel to sort this out. Cheers, Team BankBazaar

  3. Ranajoy Hembram

    I have purchased a land from someone with a sum of Rs 1150000/- out of which 950000 payment have done in cash & rest amount of Rs 200000/- in cheque. After 3 days on the time of registration of land the cheque was not clear therefore he told me to pay the Rs 200000 in cash and stop payment on the said cheque , as such I have done all the necessary steps according to his verbal advise. But now he threat me that If the cheque dishonour then he will take legal action against me. So please give me advise what should I do

    1. Team BankBazaar

      Hi Ranajoy Hembram,

      We understand your problem but as this is a legal issue, we suggest that you consult your legal counsel for help.

      Team BankBazaar

  4. C b chari

    I have given a cheque for Rs ,350000/- against settlement of various cases against me for total RS. 750000/- and the mou also mentiones case no and date of the case against the settlement of which I had given the above cheque.
    Now the cheque has been bounced due to lock down.
    What will be the consequences.
    Which type of cases will be done on me. Contempt of court. Police case of cheating and dishonoring the court settlement.
    Pl revert at the earliest as I have to take precautions

    1. Team BankBazaar

      Hi C B Chari,

      Given the specific nature of your question, we suggest you get in touch with a legal adviser immediately.

      Team BankBazaar

  5. siva

    HI I given some 4 crores with principle and interest to my friend all given hot cash not in account.

    i have 2 pronote and 5 of his cheque and 15 of his wife.

    He has land and house in name worth of 8 crores .

    HOw to proceed to file the cheque case to attach his property

    1. Team BankBazaar

      Hi Siva,

      Given the specific nature of your question, we advise you to get in touch with a financial expert regarding this query.

      Team BankBazaar


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