Legal Questions

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Cheque bounce cases in India are governed by Section 138 of the Negotiable Instruments Act, 1881. This provision was introduced to ensure that cheques – which are widely used in business and personal transactions – remain a trustworthy mode of payment.

When a cheque is dishonoured (bounced) due to insufficient funds, account closure, or any other reason reflecting on the drawer’s liability, the law treats it as a criminal offence.

1. Cheque Return Memo – When the cheque is dishonoured, the bank issues a return memo stating the reason for non-payment.

2. Legal Notice – The payee (person receiving the cheque) must send a legal demand notice to the drawer within 30 days of receiving the cheque return memo.

3. 15-Day Payment Window – The drawer is given 15 days from the receipt of the notice to make the payment and resolve the matter.

4. Filing of Complaint – If the drawer still fails to pay, the payee can file a criminal complaint in the Magistrate Court under Section 138.

Only after this process does the case proceed to trial and possible punishment.

If the court finds the drawer guilty of cheque bounce, the punishment can be:

• Imprisonment for a term which may extend to two years, or

• Fine which may extend to twice the amount of the cheque, or

• Both imprisonment and fine, depending on the seriousness of the case.

Suppose a person issues a cheque of ₹5,00,000, and it bounces due to insufficient balance. If the drawer fails to pay even after notice:

• The court can impose a fine up to ₹10,00,000,

• The drawer may also face imprisonment up to 2 years,

• Or both, as per the discretion of the court.

• Courts often prefer imposing fine/compensation rather than imprisonment so that the payee gets the money.

• If the cheque amount is very high or there is deliberate fraud, imprisonment may also be awarded.

• Section 138 cases are compoundable offences, meaning parties can settle outside court at any stage.

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Cheque bounce is a common issue in India and is governed by Section 138 of the Negotiable Instruments Act, 1881. A dishonoured cheque can lead to financial loss, damaged reputation, and even criminal liability. To avoid these problems, individuals and businesses must follow certain precautions.

Practical Ways to Prevent Cheque Bounce

1. Maintain Sufficient Balance
   Always ensure your bank account has enough funds before issuing a cheque. This is the most common reason for cheque dishonour.

2. Update Bank Records
   If your account is closed, frozen, or under restriction, cheques may bounce. Keep your bank details updated and ensure the account is active.

3. Avoid Signature Mismatch
   The signature on the cheque should match the specimen signature recorded with the bank. Even a small variation can lead to rejection.

4. Write Cheques Carefully
   Avoid overwriting or scribbling. Mention the payee name, amount (in words and figures), and date clearly to prevent technical errors.

5. Post-Dated Cheques (PDCs)
   Issue post-dated cheques only if you are certain that the required balance will be available on the due date.

6. Stop Payment Instructions
   Do not give stop payment instructions casually. Banks treat it as cheque dishonour, and it may still invite legal action.

7. Reconcile Accounts Regularly
   For businesses, regularly reconcile issued cheques with account balances to ensure no cheque is issued without backup funds.

8. Use Digital Payments Where Possible
   With the rise of UPI, NEFT, and RTGS, many payments can now be done digitally, reducing the risk of cheque bounce altogether.

• Avoids legal cases under Section 138 NI Act.

• Protects your credit history and financial reputation.

• Saves you from paying penalties and fines.

• Builds trust with business partners, clients, and lenders.

To prevent cheque bounce, always maintain sufficient funds, avoid errors while writing cheques, keep signatures consistent, and ensure timely account management. By following these steps, you can safeguard yourself from legal troubles, financial penalties, and loss of goodwill.

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Yes, a bounced cheque can indirectly damage your credit score in India. While the cheque bounce itself is not always directly reported to credit bureaus like CIBIL, Equifax, or Experian, the consequences of cheque dishonour can affect your credit profile.

1. Loan EMI or Credit Card Payment Cheque

   • If the bounced cheque was given towards a loan EMI, credit card bill, or bank dues, it will be treated as a missed payment.

   • Missed payments are reported to credit bureaus and can lower your CIBIL score.

2. Legal Action under Section 138 NI Act

   • If the payee files a cheque bounce case, it becomes part of your legal record.

   • Multiple cheque bounce cases may create a negative impression when banks or NBFCs check your financial history.

3. Bank Penalties & Account Flagging

   • Repeated cheque bounces may lead your bank to flag your account as high-risk.

   • Banks may also hesitate to issue new cheque books, loans, or credit facilities.

• A single bounce for a utility payment or personal transaction may not directly impact your CIBIL score.

• But if it is linked to a loan EMI or credit card repayment, your score may drop 50–100 points or more, depending on your overall credit history.

• Maintain sufficient funds in your account before issuing cheques.

• Use auto-debit, UPI, or net banking for timely loan and credit card payments.

• If a cheque bounces, settle the dues immediately and inform the payee.

• Avoid repeated cheque bounces, as they create both legal and financial risks.

A bounced cheque can damage your credit score, especially if it relates to a loan EMI or credit card payment. It also exposes you to legal action under Section 138 NI Act, penalties, and loss of trust. To protect your financial reputation, always ensure sufficient funds and timely payments.

Ans. Section 138 of the Negotiable Instruments Act makes it a crime to bounce a check. However, the payee (the person who was supposed to get the money) has a number of civil and other options for getting the money back.

 1. A civil suit to get money back

The payee can sue the person who wrote the check in civil court to get back:

The amount of the check,

Interest on the amount and

Costs of legal services.

This is especially helpful if the person who owes money wants to be paid back rather than punished.

 2. Filing a Summary Suit (Order 37 CPC)

If the payee wants to get the case over with faster, they can file a summary suit under Order 37 of the Civil Procedure Code (CPC).

The drawer has few defenses in summary suits, which speeds up the process of getting the money back.

This is a great way to get your money back without having to wait for a long trial.

 3. Starting arbitration (if there is an agreement)

If the underlying contract has an arbitration clause, the payee can start arbitration to quickly get the money back.

 4. Bankruptcy Proceedings

If the check amount is large and the drawer doesn't pay it, the payee can file an insolvency petition against the drawer under the Insolvency and Bankruptcy Code (IBC).

This can make the person who owes money pay it back to avoid being declared bankrupt.

 5. How to file a civil complaint under contract law

The payee can also seek damages under the Indian Contract Act, 1872 for breach of contract because issuing a check creates a legal obligation.

 The main difference between civil and criminal remedies is

Section 138 of the NI Act says that the goal of criminal punishment is to punish people (up to two years in prison, up to twice the amount of the check, or both).

Civil remedies: The main goal is to get money back and make up for losses.

In a lot of cases, payees go after both remedies at the same time: they file a criminal case to put pressure on the other party and a civil suit to get their money back.


In addition to criminal prosecution under Section 138 of the NI Act, the payee can also use civil remedies like recovery suits, summary suits, arbitration, and bankruptcy proceedings to get back the check amount plus interest and costs.