Dishonour of Cheques/Negotiable Instruments


Paying someone a check without having enough money in the bank may result in the drawer of the check being arrested. Cheques are used in a variety of situations, including loan payback, wage payment, and commercial transactions. Cheques are provided to secure proof of payment, and they are one of the most trusted ways of payment for many individuals. A check is a negotiable document that can be written in either open or crossed form. An open check is one that has not been crossed in the left corner and is payable at the drawee bank’s counter once presented. A crossed cheque, on the other hand, is one that must be paid through a collecting banker rather than at the bank’s counter.

There have been several significant changes in the way checks are issued, bounced, and handled over time.As trade and commerce grow, so does the use of checks, as well as the number of cheque bouncing problems.

The Negotiable Instruments Act of 1881, Sections 138-142, outlines the efficacy of banking operations and how to establish credibility while doing business with cheques.

A cheque is a kind of payment that may be negotiated. It is a safe and reliable instrument used by numerous banks to transfer large quantities of money or to conduct inter-account money transactions. It can be used as a recognized and acceptable bill of trade in place of cash. Understanding the appropriate order of its issuance is critical in making it genuinely negotiable. The check should be crossed or marked as an account payee check, after which it cannot be negotiated by anyone other than the payee. In legal terms, the person who writes the cheque is known as the ‘Drawer of cheque,’ and the person in whose favor the cheque is written is known as the ‘Payee.’


A cheque that is returned without processing due to the unavailability of adequate funds in the issuer’s account is called a bounced cheque. A bounced check is one that is returned without being processed because there are insufficient funds in the issuer’s account.

Dishonor of Cheques, or Cheque Bounce as it is more often known, occurs when the drawer of a negotiable instrument writes a cheque without having adequate cash in his bank account.

Under Section 138 of the Negotiable Instruments Act, 1881, it is a criminal offence punishable by up to one year in prison or a fine equal to double the amount of the dishonored check, or both. Cheque dishonor can occur for a variety of reasons, but the one that requires special attention is dishonoring owing to inadequate account balance. As a result, it is critical for the cheque’s author to ensure that his or her account has adequate funds to honour the issued cheque.

When a check bounces, the drawee bank issues and sends a ‘Cheque Return Memo’ to the payee banker, detailing the cause for the non-payment. The cause for the section 138 cheque bounce or non-payment is stated in the cheque return memo. Finally, the payee’s banker will return the bounced check as well as the cheque bounce memo to him. The payee can send a notification to the drawer under Section 138.

There are some Governing Laws on Cheque Bounce

The following are the laws that govern cheque bounce in India:

  • Negotiable Instruments Act, 1881
  •  Criminal Procedure Code, 1973
  • The Criminal Rules of Practice and Circular Orders, 1990
  • Indian Evidence Act, 1872
  •  Indian Contract Act, 1872.
  • The Specific Relief Act
  •  The Civil Procedure Code (CPC), 1908.
  • The Indian Penal Code, 1860.
  • Indian Limitation Act, 1963
  • Banker’s Book Evidence Act, 1891
  • Bills of Exchange Act, 1882.
  • The Information Technology Act, 2000 (in case of an electronic cheque)
  •   The Indian Constitution.


A cheque can be bounced because of the following reasons

Insufficient Balance: Not enough balance in the drawer’s account to make the payment.

Signature: The signature of the drawer is absent or unclear or does not seem to match the one in the Bank’s data.

Account Number: The account number is missing on the cheque or not mentioned in an eligible or readable manner.

Amount: The amount provided in the words and figures do not match.

Overwriting: Signature, or amount or other statements have been overwritten in the cheque.

Name: The name of the payee is missing or not mentioned clearly or as has been mentioned in the account details with the bank.

Alterations: Any alterations are done on the cheque that has not been proved or verified by the signature of the payee/drawer.

The non-existence of the account or non-existence of the account holder: If the account has been closed by the drawer before the presentation of the cheque or if the bank receives information regarding death, lunacy, or insolvency of the drawer.

Order by the drawer or court: If the drawer orders the bank to stop the payment of the cheque or the court orders the bank to stop the said payment.


When a drawer writes a cheque to discharge a debt or responsibility in whole or in part, and the cheque is dishonored by the bank when presented, Section 138 of the Act outlines the criminal as well as civil liability related to the dishonor of the cheque. In a situation where the cheque is dishonored, the drawee’s bank will issue a ‘Cheque Return Memo’ to the banker of the drawee mentioning the reason for non-payment. The dishonored check and memo are then given to the drawee by the drawee’s banker. If the drawee feels the check will be honored if submitted a second time within three months of the date on it, he must resubmit it within three months of the date on it. However, if the check bounces, the drawee has the right to sue the drawer.

As observed by this Court in Electronic Trade & Technology Development Corporation Ltd. V. Indian Technologists & Engineers, (1996) 2 SCC 739, the object of bringing Section 138 in the statute book is to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. The provision is intended to prevent dishonesty on the part of the drawer of negotiable instruments in issuing cheques without sufficient funds or with a view to inducing the payee or holder in due course to act upon it. It thus seeks to promote the efficacy of bank operations and ensures credibility in transacting business through cheques. In such matters, therefore, normally compounding of offences should not be denied.

On 7th December 2007, two Judges Bench in Vinay Devanna Nayak vs Ryot Seva Sahakari Bank Ltd. [Criminal Appeal No.1679 of 2007] while examining the issue as to whether an offence punishable under Section 138 of the Negotiable Instruments Act, 1881 can be compounded, held that the provision “is intended to prevent dishonesty on the part of the drawer of negotiable instruments in issuing cheques without sufficient funds or with a view to inducing the payee or holder in due course to act upon it. It thus seeks to promote the efficacy of bank operations and ensures credibility in transacting business through cheques. In such matters, therefore, normally compounding of offences should not be denied.”


After putting large money in the payee’s account, the issuer might ask the payee to resubmit the dishonored cheque. The payee has three months from the date of the cheque’s issuance to resubmit the check.

The purpose of Section 138 of the Act is to penalise the drawer of a check who has no intention of making a payment when the check bounces. In the event of an unethical cheque drawer, Section 138 of the Act imposes criminal culpability in addition to civil liability. In terms of criminal law, committing an offence is one thing, and prosecuting it is quite another. Section 138 of the Act governs the commission of an offence, whereas Section 142 of the Act governs the prosecution.

The following are the elements of Section 138 offences:

  1. The accused’s cheque is drawn to his bank account.
  2. The cheque amount is supposed to be in discharge of a debt or liability;
  3. If the cheque is returned unpaid due to insufficient funds or because the amount exceeds the arrangement made with the bank at the time the cheque is returned unpaid, the offence is committed.

Demand Notice or the Cheque Bounce Notice

If the cheque provided is bounced or dishonored, the payee must receive a demand notice within 30 days of the cheque’s bounce date. The drawer has 15 days to deposit the needed cash into the bank account after receiving this notice. If the drawer does not comply with the demand notice within 15 days, a complaint is filed in the magistrate court with authority under Section 138 of the NI Act.

To launch a complaint under section 138 of the Negotiable Instruments Act, you must first send a legal notice within 30 days after the check return date, giving you 15 days to pay. If the notification is returned to the sender as unclaimed, the starting date is regarded to be 15 days. If the drawer fails to make a suitable payment within fifteen days after getting the notification, it will be regarded a breach, and the drawee has the right to file a criminal complaint. If the money is not paid within these 15 days, you have another 30 days to submit a criminal complaint in court under S. 138, after which the matter will be started and pursued.

The Crucial Elements of a Cheque Bounce Notice

A cheque bounce notification must include the following elements.

  • The reason for the check being dishonored.
  • Information for the payer/issuer to make a big payment, such as the amount of the check, the amount number, the date, and both parties’ addresses.
  • A number of cheques have been issued that must be paid to the payee within 15 days of receipt of the notice.

The cheque bounce notification must be sent out within 30 days of the check being returned. One copy of the notification should be kept by the payee, while the other should be forwarded to the issuer through registered mail. If the drawer fails to make the required payment within the 15-day period specified in the check bounce notice, the payee has the right to file a complaint with the court within 30 days following the end of the 15-day period.

Where should a Cheque Bounce Notice be filed?

The proceedings in the check bounce case will follow the regulations of the Code of Criminal Procedure (CrPC), 1973, which govern summary trials. If the cause of action occurs in a metropolitan city, the case will be heard by a Metropolitan magistrate; in other places, the case will be heard by a Judicial Magistrate.

In the case of a check bounce, the complaint can be made either at the payee’s bank or at the drawer’s bank. In addition, depending on the amount of the dishonored check, the complainant (payee) must pay a standard amount of court expenses. The court costs fluctuate from case to case and are based on the amount of the check.

Required Documents to File a Cheque Bounce Complaint

The returned cheque slip from the drawee’s bank, legal notice, reply to the such legal notice, acknowledgment of receipt of such notice, invoice, original copy of the bounced cheque, and any other documentation deemed pertinent to the facts of the case should be included with the cheque bounce complaint. The receipt of the unpaid check affidavit letter of oath.

After expiration of 15 days:

If the drawer fails to fulfill his/her payment liability, then he/she is punishable under Section 138 cheque bounce. The payee can file the complaint in the Court of Judicial Magistrate of First Class or Metropolitan Magistrate (MM).

Complaint procedure:

The complaint has to be accompanied by an Affidavit by the Payee or the complainant. The submitted documents and complaints will be examined by the concerned MM in order to confirm the commission of offence. Once the commission is made confirmed, then a summons will be issued for the hearing at the Summary Trial.

Hearing Procedure:

On the date of hearing, if the drawer or the accused appears, the MM shall ask him/her to provide as well as submit a bail bond to make certain that he/she appears during trials. Further, he/she has to take notice under section 251 of the Criminal Procedure Code and accordingly, submit his/her defense plea.

Passing the Final Decree:

After hearing the arguments of both sides, the MM passes the final judgment.

Punishment & Penalty:

If the drawer is found guilty based on the evidence presented to the MM, the latter has the authority to impose a sentence of imprisonment ranging from one to two years, as well as a fine of up to Rs.5000/-.

In the case of repeated Check bouncing offences, the cheque issuing bank has the power to deny him or her access to a cheque book and to freeze or shut his or her account.

In India, a cheque bounce can result in imprisonment for up to one year, a fine of up to double the amount of the check, or both.

The following crucial points must be kept in mind in order to take advantage of the legal remedies available for a bounced check, whether it is an account payee check or not.

  • If no response is received from the drawer of the cheque, the complaint must be filed within 30 days of receiving the reply to the legal notice of cheque bounce, or within 30 days after the expiration of the 15-day period from the date the notice was sent if no reply is received from the drawer of the cheque.
  • Failure to comply with the timeframe of 30 days may be excused by Metropolitan Magistrate in exceptional circumstances.
  • The dishonor of a cheque is also covered under Section 138 of the Negotiable Instruments Act if the drawer of the cheque has halted the payment of the cheque.
  • If the drawer of a cheque requests the issuer of the cheque to present the cheque again after receiving a cheque bounce legal notice, and the cheque is dishonoured again, the drawer’s timeframe is not extended as stated in the notice.
  • The cheque must have been issued as a legal obligation in order for Section 138 of the Negotiable Instrument Act to apply.
  • It simply implies that a gift check, a contribution check, or any other non-legal duty is not protected by the cheque bounce legislation or act.
  • A cheque’s validity is limited to three months from the date of issuance.

If dishonoured cheque was a gift, In this case, the payee cannot prosecute the drawer.  

Dashrath Rupsingh Rathore v. State of Maharashtra

The ground rule under Section 138 of the Negotiable Instruments Act was changed to the prosecution of an individual who has presented a cheque which eventually bounced for insufficiency of funds.

In this case, the matter of jurisdiction for filing a criminal complaint under Section 138 was discussed. Earlier a case under Section 138 could be initiated by the holder of the cheque at his place of business or residence only. The court changed this practice and held that a criminal case has to be initiated at the place where the branch of the bank on which the cheque was drawn is located. The retrospective effect of the judgment leads to a major overhaul and interstate transferring of cheque-bouncing cases.

Kishan Rao v. Shankargouda

This case deals with the issue of rebuttal against presumption by the accused in a cheque bounce case along with the revisional jurisdiction scope of High Courts in such cases.

The order of the High Court passed while exercising revisional jurisdiction, setting aside the conviction order of the accused which was challenged by the Appellant. On failure to produce any oral or documentary evidence during the trial, the Trial Court drew presumption against the accused under Section 139 of the NI Act. On refusal to rebut the presumption by the production of evidence, he was convicted under Section 138 of the Act. A criminal revision was filed in the High Court against such order of the Trial Court. The High Court set aside the conviction and this was challenged by the Appellant in the Supreme Court.

After both issues were argued upon, the court held that the High Court in the exercise of its revisional jurisdiction cannot set an order of the magistrate aside merely on the ground that on such facts and circumstances, another view is possible. Unless the court can establish that the findings of the lower court that lead to its conclusion were perverse or wholly unreasonable or there is a non-consideration of any relevant material, the order cannot be set aside.

In the context of the rebuttal, the court held that only when the accused is able to rebut the presumption or raise doubt as to the existence of the debt and/or liability that such presumption may fail. The accused may adduce evidence to rebut such presumption against him. Mere denial of the existence or knowledge of debt shall not suffice for this purpose.

The Criminal Offence for Cheque Bounce

Section 138 imposes a two-year term, as well as a fine that can be increased to double the amount of the violated amount or both. It’s a crime that can be prosecuted. The complainant must have submitted a written complaint of the offence with a court that is not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class, according to the Negotiable Instruments Act, 1881.

This complaint must be filed within one month after the occurrence of the cause of action.

The drawee can file a complaint at the local limit of the jurisdiction where the following events occurred:

  1. the cheque was drawn.
  2. the cheque was presented;

3. the bank returned the cheque

4. The drawee served the notifications of demand for payment.

Under Sections 417 and 420 of the Indian Penal Code, a non-bailable warrant can be issued against the drawer right away. When more than one check bounces, the drawee can file a separate suit for each one, compounding the defaulter’s problems. It is a bailable offense, which means that if the drawer does not appear in court after getting a summons, the court can issue a non-bailable warrant against him and arrest him.

In practise, the court will issue a summons to the accused, requiring them to appear in court. If the accused flees (as is often the case in check bounce cases), the court will issue a bailable warrant. If the accused flees again, a non-bailable warrant will be issued at the police station where the accused resides.

Although there are instances where a check bounce is a criminal offence under section 420 of the Indian Penal Code 1860, criminal breach of trust under section 405 of the Indian Penal Code, 1860, criminal misappropriation of property under section 403 of the Indian Penal Code, 1860, and so on.A police complaint might be filed in the jurisdiction where the cause of action arises in these instances.

Although this is a criminal accusation brought against the accused, it is not a mechanism for recouping the lost funds.The purpose of filing criminal charges is to blacklist the accused, putting more pressure on them to settle.

Civil Suit for Cheque Bounce

There is also an option for the aggrieved drawee to file a civil suit in order to recover the due amount from the drawer. A summary suit can be filed under Order XXXVII of the Code of Civil Procedure, 1908. A summary suit is contrary to an ordinary suit. Order XXXVII of the Code of Civil Procedure, 1908 provides for a summary suit or summary procedure where the accused has to get permission from the court to defend himself. Summary suits can only be filed for recovery cases which can be recovered from cheques, promissory notes, or bills of exchange.

Prosecuting under the criminal code against the drawer would not prevent the complainant from taking a civil action for recovery of the cheque amount or any part of it. It will not jeopardize the rule of double jeopardy. The Supreme Court states that any related pendency of a criminal matter would not obstruct the proceedings with a civil suit. Thus, both the proceedings can move simultaneously.


The complaint under Section 138 has to be filed within a limited time period of 1 month only else it becomes time-barred. As per Advocate (Dr.) Ashok Dhamija (Advocate, Supreme Court), if the magistrate agrees as to the withdrawal of the complaint then it becomes mandatory to acquit the accused against whom the complaint was made under Section 257 of Cr.P.C. Also, it becomes pertinent to mention that under Section 300 of Cr.P.C. a person acquitted of offence shall not be tried for the same offence twice. 

In Cranex Ltd. & Anr. v. Nagarjuna Finance Ltd. & Anr., (2000) 7 SCC 388, a settlement had been entered between the parties during the pendency of appeal in Sessions Court against an order of conviction and sentence recorded by the Magistrate under section 138 of the Act. This Court directed the Appellate Court to consider the settlement and to take appropriate action in accordance with law.

In O.P. Dholkia vs. State of Haryana & Anr., (2000) 1 SCC 762, an order of conviction recorded by the Trial Court was upheld by the Appellate as well as Revisional Court. Thereafter, however, a compromise had been arrived at between the parties, and the entire amount was paid to the complainant.

Consequences of the Cheque Bounce

A cheque bounce case might lead to various consequences like:-

Bank Penalty: The bank imposes a penalty in the form of NSF (non-sufficient fee) in case of a cheque bounces due to insufficient funds in the account, mismatch of signatures or any other technical issue. The penalty imposed varies depending upon the type of bank account. Further, if the bounced cheque is for repayment then the bank imposes a penalty fee plus the late payment charges in case of the delay in the payment. The court fees vary with the case and the cheque amounts.

Impact on the CIBIL Score: A CIBIL score carries a three-digit number ranging from 300 to 900 used by the banks and other non-banking financial companies to determine a person’s financial credibility to repay the loan on time. The cheque bounce can cause a negative impact on the CIBIL score of the accused and might create issues while obtaining a loan from the bank in the future.

Defaulter by RBI: The RBI (Reserve Bank of India) has issued guidelines to authorize the banks to stop issuing chequebooks to defaulters who have been accused of dishonor of cheques for a minimum four number of times for an amount exceeding Rs. 1 crore.

Civil and Criminal Charges: A cheque bounce will lead to a civil suit or a criminal complaint against you by the aggrieved payee. A lawsuit for cheating and dishonesty under Section 420 of the Indian Penal Code, 1860 can also be filed, provided the charge of cheating and dishonesty needs to be proved against the drawer.

  • Purushottam Reddy v. K. Sateesh, (2008) 8 SCC 505. mentioned that while both the proceedings are possible simultaneously (i.e., cheque bounce case under Section 138 of Negotiable Instruments Act, as well as a civil suit for recovery of money due), generally in practice only Section 138 case is filed by most people since this is a faster way of getting justice and also since if this case succeeds then generally the court will award fine / compensation equivalent to the amount of the cheque, which will obviate the need for filing of the civil suit for recovery of money.


The changes in the Act as per the Negotiable Instruments (Amendment) Act, 2018 are as follows:

  • Firstly, the drawer of the cheque shall pay interim compensation to the complainant in a summary trial or a summon case. This applies even if the drawer pleads not guilty to the charges. The compensation may not exceed 20% of the amount of the cheque.
  • Secondly, this interim compensation shall be paid within a period of 60 days from the date of the order. In some cases with the discretion of the court, a maximum of thirty-day extension can be given.
  • Thirdly, in situations where the drawer of the cheque is acquitted the complainant has to repay the interim compensation with interest to the drawer. 

The intention behind these amendments is to add support to the current provisions under Section 143 to 147 which may impress upon the trial courts to provide a speedy trial along with an interim compensation of 20 percent of the cheque amount as a partial recovery. This is a positive step taken towards the recovery of bounced cheque amounts considering the number of pending cases of cheque bounce in India.


The cheque must be issued to pay off some debt or liability, and not for any donation or gift. The cheque must be presented to the bank within its validity period of the cheque i.e. 3 months from the date mentioned in it. The reason for cheque bounce must be insufficient funds in the bank account of the issuer. Legal notice for cheque bounce must be sent to the issuer to allow him/her to make the payment before filing a cheque bounce case against him/her.

Siddharth jain and Co.

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