A bounced cheque signifies a breach of financial trust. Under the Negotiable Instruments Act, 1881, Section 138 criminalizes the dishonour of cheques due to insufficient funds, stop payment, or closed accounts. Legal action includes both civil recovery and criminal prosecution.
Deals with punishment for dishonour of cheques.
Presumption of liability in favour of the cheque holder.
Governs time limits and cognizance of complaints.
To successfully prosecute a cheque bounce case under Section 138 of the Negotiable Instruments Act, several specific conditions must be met. Firstly, the cheque must have been issued towards a legally enforceable debt or liability. Secondly, the cheque must have been dishonoured due to insufficient funds, account closure, or similar reasons. Upon dishonour, the payee is required to send a legal notice to the drawer within 30 days of receiving the bank return memo. If the drawer fails to make the payment within 15 days of receiving the notice, the payee is entitled to file a complaint. However, such a complaint must be lodged within one month from the expiry of the notice period to be considered valid under the law.
Jurisdiction lies where cheque is dishonoured (later reversed).
Case can be filed where payee's bank is located.
Allowed flexible procedures and compounding at any stage.
Presumption under S.139 must be rebutted with proof.
The punishment for cheque bounce under Section 138 of the NI Act can extend to imprisonment of up to 2 years. The court may also impose a fine up to double the cheque amount, depending on the circumstances of the case. In appropriate cases, the offence is compoundable under Section 147 of the NI Act, meaning the parties can mutually settle and withdraw the case with the court's permission. Additionally, the payee may initiate a civil recovery suit to claim the due amount, along with interest and legal costs.
Despite strong statutory provisions, cheque bounce litigation faces several practical challenges. A major issue is the high pendency of cases in trial courts, often leading to delays. There is also increasing concern over the misuse of Section 138 in civil loan disputes, where cheques are used as security and not for actual liability. Technical lapses, such as incorrect or poorly drafted legal notices, often result in dismissal. Furthermore, the rise of digital transactions has led to a decline in the usage and enforcement of cheque-related laws.