Cheque Bounce Law & Your Rights Explained
The Negotiable Instruments Act, 1881 is a key law in India that governs documents like cheques, promissory notes, and bills of exchange. These instruments legally guarantee payments in financial and business transactions.
If a cheque bounces due to lack of funds, wrong signature, or other reasons, the law protects the person who received the cheque and allows them to take legal action. At the same time, it sets penalties for the person who issued the dishonoured cheque.
Key Highlights
- Covers cheques, promissory notes, and bills of exchange.
- Ensures these are legally enforceable documents.
- Cheque bounce = punishable offence (fine or jail).
- Protects the receiver (payee) who accepts cheques in good faith.
- Builds trust and transparency in financial transactions.
Table: Rights & Duties in Cheque Transactions
| Role | Rights | Duties / Consequences |
|---|---|---|
| Cheque Issuer (Drawer) | - Can issue cheques for payments - Can defend if cheque was misused - Can settle disputes before case proceeds |
- Must ensure enough funds - If cheque bounces → fine up to 2x cheque amount or jail up to 2 years - Must respond to legal notice within 15 days |
| Cheque Receiver (Payee/Holder) | - Can present cheque within 3 months - Can file complaint if cheque dishonours - Can demand double amount as fine + legal remedy |
- Must send notice within 30 days of dishonour - Must file case within 1 month after notice period - Cannot misuse cheque received as a gift/donation |
FAQs – Negotiable Instruments Act, 1881
General FAQs
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Q1. What is a negotiable instrument?
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A written document promising payment of money, like a cheque, promissory note, or bill of exchange.
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Q2. How long is a cheque valid?
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Usually 3 months from the date written.
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Q3. Are digital cheques valid?
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Yes, electronic cheques are valid under this law.
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Q4. Is UPI/online transfer covered under this Act?
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No, this Act applies only to cheques, promissory notes, and bills of exchange.
If You Receive a Bounced Cheque (Payee’s Perspective)
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Q5. What should I do if a cheque bounces?
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Send a legal notice within 30 days. If no payment in 15 days, you can file a case.
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Q6. Do I need a lawyer to file a cheque bounce case?
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Yes, in most cases you’ll need legal help in court.
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Q7. Can I file a case if the cheque was a gift?
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No, cheque bounce cases apply only for legal payments (like loan repayment, bills, business dues).
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Q8. What if the issuer refuses to pay even after notice?
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You can approach the Magistrate Court under Section 138 NI Act.
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Q9. What is the time limit to file a case?
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Within 1 month after the 15-day notice period expires.
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Q10. Can I withdraw a cheque bounce case?
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Yes, if both parties agree to settle.
If You Issued a Cheque That Bounced (Drawer’s Perspective)
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Q11. What happens if my cheque bounces?
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You may face a fine up to double the cheque amount or jail up to 2 years, or both.
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Q12. Can I defend myself if I didn’t intend fraud?
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Yes, if you prove valid reasons like the cheque was stolen, altered, or issued as security without liability.
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Q13. What if I lost a signed cheque and it got misused?
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Inform the bank immediately and stop payment. Still, you may need to defend in court.
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Q14. What if the cheque was from a joint account?
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Only the signing account holder is liable.
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Q15. Can I settle the case outside court?
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Yes, you can pay the due amount + costs and settle before or during trial.
Where to File Complaints
- File a case in the court where the bank of the payee (receiver) is located.
- Approach the Magistrate Court under Section 138 of NI Act.
- Complaints can also be lodged through State Legal Services Authority for free legal aid.
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