Understanding Cheque Bounce Cases: Section 138 Violation, Penalties, and Legal Action

Last Updated : Sept. 12, 2023, 12:32 p.m.

A cheque bounce case is a violation under Section 138 of the 1881 Negotiable Instruments Act, punishable with a penalty which can expand to twice the cheque amount or imprisonment of two years or both. When you present a cheque to a banking institution for payment, which rejects and returns it unpaid with an insufficient funds memo, it displays a warning suggesting financial issues. As a result, the cheque is bounced. There are several reasons, but if the reason for a cheque bounce is insufficient funds, it indicates a violation under the Act specified above. The banking institution should reject the presented cheque with a return memo stating the reason, which is insufficient funds. In such circumstances, you can issue a cheque bounce notice against the drawer and ask the drawer to pay the amount.

Situations of Cheque Bounce

The numerous circumstances that lead to cheque bounce are as follows:

Insufficient Account Balance

Suppose there is insufficient balance in the drawer’s account. In that case, the banking institution will reject and return the cheque specifying insufficient funds.

Expired Cheque Validity

When a drawer issues a cheque, it should be presented for payment within three months. A cheque’s validity expires if not presented to a bank within three months. Hence, if a bank receives an expired cheque, it bounces.

Overwriting

Suppose your sign, amount or any other statement is overwritten on the cheque. In that case, it bounces.

Damaged Cheque

Suppose a cheque is damaged or disfigured, has stains or marks, and some information is not clearly visible. In that case, the cheque will bounce.

Signature Mismatch

Suppose your signature on a cheque is unclear, absent or doesn’t match the sign on the bank’s data. In that case, the cheque bounces.

Amounts or Digits Mismatch

Suppose the cheque amount specified in figures and words doesn’t match. In that case, the cheque bounces.

When a cheque bounce case occurs for the above reasons, the payee can request the drawer to submit another cheque and rectify the previous mistakes. Suppose the drawer disagrees with signing another cheque. In that case, the payee can take legal action against the drawer to pay the due cheque amount.

Cheque Bounce Notice Issuance

Suppose a cheque bounce notice is issued because of an insufficient amount. In that case, you can issue a cheque bounce notice and demand the payment in writing under the Negotiable Instructions Act. If a cheque bounces for other reasons, you can not issue a cheque bounce notice but can demand cheque resubmission. As a payee, you can issue a notice within thirty days of an intimation sent by a banking institution specifying the reason for a cheque bounce case.

After issuing the notice, you should give the drawer a time of 15 days from the cheque bounce notice receipt date to pay the amount. If the drawer doesn’t return the cheque amount within 15 days, you can file a cheque bounce case and take legal action against the drawer within 30 days. Nevertheless, you can not issue a cheque bounce notice if the issued cheque was a donation, gift, or any other purpose, which is legally not enforceable. The cheque should be issued for clearing a legally enforceable liability or debt violating the Negotiable Instruments Act.

Procedure to Follow After Issuing a Cheque Bounce Notice

After the 15 days expiration of the cheque bounce case, you can take legal action against the drawer. You should register a complaint under Section 138 of the 1881 Negotiable Instruments Act. A cheque bounce case is a criminal offence under the Act for which you can file a criminal case. It is mandatory to file the complaint against cheque bounce before the magistrate within thirty days of the 15 days expiry date of issuing the cheque bounce case notice.

Conclusion

According to the Supreme Court, cheque bounce cases have increased drastically, with around forty lakh cases maximum pending before courts. Nevertheless, modifications introduced in 2015 and 2018 included a pledge to speed up cheque bounce case resolutions and ensure victims’ reparation. Such modifications surged system transparency by refraining people from falling behind in payments. As a result, because consumers feel secure now, Section 138 has benefitted business transaction facilitation. It also aids in retaining the current financial system. You can follow the primary reasons behind a cheque bouncing into your account to prevent a legal notice. However, if you have legal problems due to a cheque bounce case, you can seek legal expert assistance to simplify the process.

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