Cheque Bounce & Section 138 — Detailed Guide

When you issue a cheque and the bank refuses due to insufficient funds or signature mismatch etc., that's a dishonoured cheque, commonly called a cheque bounce. In India, this can trigger criminal liability under Section 138 of the Negotiable Instruments Act, 1881.

Legal Steps After a Cheque Bounces

• Obtain the Bank Memo / Return Memo
  The bank gives you a memo stating the cause for non-payment.
• Send Legal Notice (Demand Notice)
  Within 30 days from receiving the memo. It must demand payment of the cheque amount.
• Wait for 15 Days
  The drawer has 15 days to comply with the demand.
• File Complaint
  If payment is not made, you can file a criminal complaint under Section 138 in the Magistrate's Court. Must be filed within one month after the 15-day period expires.
• Court Process & Possible Sentence
  The court examines evidence. If found guilty, the drawer can get up to 2 years' imprisonment, or a fine up to twice the cheque amount, or both.
• Interim Compensation (if applicable)
  Under Section 143A, the court may direct interim compensation during the pendency of the case. 
   

Key Points / Recent Developments

• The "Checklist for 138 N.I. Matters" is available as a government PDF form for courts to follow procedures. 
  eCourt India Services
• Delhi has implemented digital courts & e-filing for cheque bounce cases to speed up the process. 
  Press Information Bureau
• The Supreme Court has clarified that complaints can be taken only against the drawer of the cheque. 
  API SCI
• The timeframe rules (30-day notice, 15 days to pay, 1 month to file complaint) are mandatory; noncompliance can invalidate the case. 
  API SCI

FAQs — Cheque Bounce Under Section 138

1. What is cheque bounce?

Bank refuses payment due to insufficient funds, signature mismatch, closed account, etc.

2. Which law covers cheque bounce?

Section 138, Negotiable Instruments Act, 1881.

3. Civil or criminal?

It's a criminal offence, though you may also pursue civil recovery.

4. What is the first step after cheque bounce?

Get the return memo from the bank.

5. When must the legal notice be sent?

Within 30 days from the date of the return memo.

6. What must the notice contain?

Details of cheque, reason for dishonour, demand for payment within 15 days.

7. How long does the drawer have to pay?

15 days from the receipt of the notice.

8. What if payment isn't made?

File a complaint within one month of expiry of that 15-day period.

9. Can the notice be sent via WhatsApp or email?

Better to use Registered Post / Courier with proof of delivery.

10. What penalties can be imposed?

Imprisonment up to 2 years, or fine up to twice the cheque amount, or both.

11. Can I claim interest?

Yes, claim interest in your complaint.

12. What about a post-dated cheque?

If dishonoured and for a legal debt, Section 138 may apply.

13. If it was a gift cheque?

No—Section 138 applies only to legally enforceable debt or liability, not gifts.

14. What if issuer stops payment?

Even "stop payment" doesn't protect if it was for a debt.

15. Where can I file the case?

Typically where the bank branch is located or where the account is maintained.

16. Multiple cheques in one complaint?

Generally separate cases, unless part of same transaction and allowed by court.

17. What if I miss the 30-day notice window?

Criminal remedy is lost under Section 138; civil remedies may still be available.

18. Can the drawer appeal?

Yes, they can challenge conviction or order in higher court.

19. Is a lawyer needed?

Highly advisable for drafting notice, complaint, and court handling.

20. Can a company be prosecuted?

Yes. If a company issues the cheque, its officers may also be liable.