All about Bouncing cheques


The negotiable instrument in practice means a piece of paper containing in writing a right entitled the holder to claim usually money but sometimes good. For the purpose of Negotiable instrument Act a ‘negotiable instrument’ means a promissory note, bill of exchange or cheque.

A cheque is an instrument in writing or a document that basically orders a bank to pay a specific amount of money from a person account to the person in whose name the cheque has been issued. Definition of a cheque as per The National Provincial Bank circa 1968 was “an unconditional order in writing drawn on a Banker, signed by the drawer, instructing the Banker to pay on demand a sum certain in money to or to the order of a specified person or to Bearer and which does to order any act to be done in addition to the payment of money”.

There are different types of cheques like:

  • Bearer cheque
  • Crossed cheque
  • Self cheque
  • Post-dated cheques
  • Bankers cheque
  • Traveler’s cheque

 The person issuing the cheque is called a ‘drawer’  and to whom the cheque is issued is called a ‘drawee’. Both parties have a transaction banking account where the money is held. Cheques have now become an integral part of our monetary system for making payments. The following are the characteristics of a cheque:

  • It should be done in writing
  • Unconditional order
  • Signature of the drawer is a must
  • Payable on demand
  • Sum of money should be specified
  • The drawer should be specified
  • The date should be specified

What is a Cheque bounce?

When a cheque is returned unpaid from the bank it is said to be bounced or dishonored. A bounced cheque does not hold any value and cannot be redeemed for its value specified. It is basically just worthless. They are also known as RDI (returned to deposit item).  Cheque bounce could happen due to several reasons as if the drawer’s bank account has been frozen or has limited or insufficient funds when the cheque was redeemed. A cheque issued by a drawer returned unpaid on an account with insufficient funds is called to be a ‘bounce cheques’. When a cheque has bounced the drawee gets a ‘cheque return memo’ issued by the bank which clearly states the reason for the none payment. There are several reasons as to why a cheque is generally bounced:

  1. Stale cheque- when a cheque is presented after the lapse of 3 months i.e. after the cheque is expired.
  2. When the account of the drawer is closed .
  3. When there is insufficient cash in the payee’s account in comparison to many specified in the cheque issued by him.
  4. If the cheque is crossed cheques.
  5. If the signature of the drawer is not matching.
  6. If there is overwriting in the cheque.
  7. If the payment is stopped by the account holder himself.
  8. If the opening balance of the account is insufficient.
  9. If there is any kind of disparity in the figures and numbers of the cheque.
  10. If the account number doesn’t match.
  11. If the cheque is crossing the limits of the overdraft.
  12. If the cheque is mistakenly presented at the wrong branch to be redeemed.
  13. If the drawer is dead.
  14. If the cheque issued is against the rule of trust.
  15. The insanity of the customer.
  16. In the case of a joint account, only one sign is there on the cheque instead of both.
  17. If it is a company Cheque and if it does not bear the seal of a company cheque.
  18. Insolvency of the customer.

Cheque bounce is a criminal offence in India and covered under section 138 of the Negotiable instruments Act.

  • Liability of the drawee on dishonor of cheques (S.31)-  if the drawer has sufficient funds in the account and such funds are properly applicable towards the payment of the cheque then the drawee is duly required to pay the cheque. In the case of default by the drawer, i.e. the banker the drawer shall compensate for the loss caused to him. On the dishonor of the cheque, the drawer is punishable with imprisonment for a term not exceeding a down of 2 years or with a fine not exceeding twice the amount of a cheque or with both of the following conditions are fulfilled:
  • If the cheque is returned by the bank unpaid due to the insufficiency of funds in the bank account of the drawer.
  • If the cheque was drawn to discharge a legally enforceable debt or other liability.
  • If the cheque is not stale i.e. it has been presented to be redeemed within a period of 3 months from the date drawn on or within its liability.
  • If the payee or the holder of the indie course of the cheque has given a written notice demanding payment within 30 days from the drawer on receipt of the information of dishonor of cheque from the bank.
  • If the drawer has failed to make payment within 15 days of the receipt of the said notice.
  • Liability of a drawer on dishonor of cheques :
  • Civil liability: The legal position of the drawer becomes that of a principal debtor to the holder. He can bring a civil suit against him to recover his money.
  • Criminal liability: A drawer is deemed to have committed a final offense when the cheque drawn by him is dishonored by the drawee on the account of the inefficiency of funds.

Notice of dishonor:

It is basically a notice or a piece of information about the fact the cheque or the instrument has been dishonored. After the cheque is bounced the drawer gets a ‘cheque return memo’ stating the reason for the dishonor of cheque. After this, the notice of dishonor is sent to the drawee either by the holder or a party to the instrument who remains liable for it. This serves as a warning to the drawee to make the payment as soon as possible otherwise the matter will be moved to the court under S.138. A period of 30 days is given to the payee to complete the payment. Enormous delay in giving notice albeit may put an end to the plaintiff’s right in the respect of dishonored instruments.

Offense by Company:

Under section 141- If the person committing an offense under section 138 is a company, every person who at the time the offense was committed was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offense and shall be liable to proceed and punished accordingly. It basically covers 3 categories liable under section 138:

  1. The company.
  2. Every single person who was in charge of the company .
  3. Any other person who is a director or manager or secretary of the company.

The accusation must be specific as who was in charge and holding any kind of responsibility for the conduct of the company’s business at that particular  period of time.


The punishment set according to the Negotiable Instruments Act (S.138) is either imprisonment for 2 years maximum or fine up to twice the amount of the cheque or both. If after the notice of dishonor is sent to the drawee and still within the span of 30 days he doesn’t complete the due payment then the matter will be moved to the court but if he manages to pay the drawer his payment then there will be no need of doing so. When a cheque is drawn by a company every single person who was in charge of the company’s business at that particular period of time.

Landmark cases:

  1. S.M.S Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. (2005) 8 SCC 89

The Supreme court has categorically held that there has to be specific averment in the complaint to the effect that such a person was not only in charge of and is responsible to the company for the conduct of its business but it was also required to be stated as to how and in what manner he was so responsible.

  1. Kishan Rao v. Shankar gouda  (2018) 2nd July SC

The Supreme Court has reiterated on the scope of the revisional jurisdiction of a high court. The court held that the high court is not to interfere with any of the magistrate’s order unless it seems to be completely unreasonable or there is no consideration of relevant material. Also, magistrates’ order cannot be set aside on the mere ground that no other view is possible.

  1. Modi Cements Limited v. Kuchil  Kumar Nandi AIR (1998) SC 1057

A 3 bench judge bench of the Supreme Court held that even if a notice is issued to stop the payment of the money before the payee has deposited the cheque with his bank, the act of crime is committed. Once the cheque is issued by the drawer, it must be presumed that just because notice is issued by the drawer to the drawee or the bank it’ll not stop actions under section 138 by the holder of the cheque indie course. This defense under a strict interpretation of the “insufficiency of funds” stands weak to some extent.


  1. What is the maker of a bill of exchange called?
  2. What is the validity of a cheque?
  3. Offenses committed under the negotiable instruments act are compoundable or not?
  4. Explain notice of dishonor.
  5. List several types of cheques.


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