In India, a bounced cheque is a criminal offense under Section 138 of the Negotiable Instruments Act, 1881. As of 2026, legal framework has become increasingly stringent to protect interests of payees and maintain sanctity of financial transactions.
If you have issued a cheque that was dishonoured, or if you are holding one that has bounced, here is everything you need to know about penalties and legal process.
1. Legal Penalties
Under Section 138, if a court finds a person guilty of intentionally issuing a cheque that bounces due to insufficient funds or for exceeding arrangement with bank, the following penalties apply:
-
Imprisonment: A jail term of up to 2 years.
-
Monetary Fine: A fine that can extend up to twice amount of cheque.
-
Both: In severe cases, court may impose both fine and imprisonment.
Additional Consequences
-
Both the drawer (issuer) and the payee (recipient) are typically charged by their respective banks for dishonour, ranging from ₹100 to ₹750 depending on bank.
-
A bounced cheque is reported to credit bureaus, significantly lowering your credit score and making it difficult to secure future loans.
-
Frequent offenders may have their cheque-book facilities withdrawn or their accounts closed by bank.
2. Legal Procedure
A cheque bounce does not automatically lead to jail. The law provides a specific window for drawer to rectify mistake:
-
Cheque Return Memo: When cheque bounces, the bank issues a “Return Memo” to the payee stating the reason (e.g., “Insufficient Funds”).
-
Statutory Demand Notice: Payee must send a formal legal notice to the drawer within 30 days of receiving Return Memo.
-
15-Day Grace Period: Drawer has 15 days from the receipt of this notice to pay the amount. If payment is made within this window, no criminal offense is committed.
-
Filing a Complaint: If drawer fails to pay within 15 days, payee can file a criminal complaint in Magistrate’s Court within 30 days of expiry of grace period.
3. Interim Relief
To prevent drawers from using long trial delays to avoid payment, recent amendments have introduced Section 143A:
-
Interim Compensation: Court can order drawer to pay up to 20% of cheque amount to payee as interim relief while trial is still ongoing.
-
Timeline: This must be paid within 60 days of court order.
-
Appeals: If drawer is convicted and wishes to appeal to a higher court, Section 148 requires them to deposit a minimum of 20% of fine or compensation awarded by lower court.
4. When does Section 138 NOT apply?
It is important to note that not every bounced cheque leads to a criminal case. Law does not apply if:
-
Cheque was issued as a gift or for charity (not for a “legally enforceable debt”).
-
Cheque was presented after its validity (usually 3 months).
-
Reason for bounce is a minor technical error, such as a signature mismatch (though this can still be litigated if proven to be a tactic to avoid payment).
Summary
| Action | Time Limit |
| Notice to Drawer | Within 30 days of bounce |
| Payment by Drawer | Within 15 days of notice receipt |
| Filing Court Case | Within 30 days after 15-day period ends |
| Interim Payment | Up to 20% of cheque amount (if ordered) |
Note: Dealing with a cheque bounce case is time-sensitive. Missing a deadline by even a single day can result in case being dismissed or right to sue being lost.