Understanding Cheque Bounce Laws in India: Legal Remedies and Consequences

Understanding Cheque Bounce Laws in India: Legal Remedies and Consequences

In India, cheque bounce cases are governed under Section 138 of the Negotiable Instruments Act, 1881. A cheque is said to be dishonoured or bounced when it is returned by the bank unpaid due to insufficient funds, a mismatch in signature, or the account being closed.

Key Provisions of the Law:

1. Legal Notice:

   • The payee must issue a written demand notice to the drawer within 30 days of receiving the cheque return memo from the bank.

   • The drawer has 15 days from receiving the notice to make the payment.

2. Filing a Complaint:

   • If payment is not made within the stipulated 15 days, the payee can file a criminal complaint before the magistrate within 30 days of the expiry of the notice period.

3. Punishment:

   • The offence is punishable with imprisonment up to 2 years, or a fine up to twice the cheque amount, or both.

4. Jurisdiction:

   • The complaint must be filed in the court within the jurisdiction of the bank where the payee’s account is located.

5. Compounding of Offence:

   • Cheque bounce is a compoundable offence, which means the parties can settle the matter out of court at any stage.

Recent Developments:

• The Supreme Court and various High Courts have stressed speedy disposal of cheque bounce cases to reduce judicial burden.

• The Negotiable Instruments (Amendment) Act, 2018 introduced interim compensation of up to 20% of the cheque amount.

Why It Matters:

Cheque bounce laws play a vital role in maintaining trust in commercial transactions. They act as a deterrent and ensure financial discipline in both personal and business dealings.