Why does a cheque bounce? (Reasons)

Answer

A:

A cheque may bounce when the bank refuses to honour it and returns it unpaid. There are several reasons why this can happen:

 Common Reasons for Cheque Bounce

1. Insufficient Funds – The drawer’s account does not have enough balance to cover the cheque amount.

2. Signature Mismatch – The drawer’s signature on the cheque does not match the specimen signature with the bank.

3. Account Closed – The drawer has closed the account before the cheque was presented.

4. Stop Payment Instruction – The drawer issues stop payment instructions to the bank.

5. Post Dated Cheque – The cheque is presented before the date mentioned on it.

6. Stale Cheque – The cheque is presented after its validity period (3 months from the date).

7. Overwriting/Alteration – Any correction on the cheque without authentication can cause dishonour.

8. Exceeds Arrangement – When the cheque amount is more than the overdraft or credit limit allowed.

9. Frozen or Dormant Account – If the account is frozen due to legal issues, or marked inactive.

10. Technical Errors – Wrongly filled details like mismatch in words and figures, torn or damaged cheque, or incomplete details.

 Importance

• The reason for cheque bounce is mentioned in the Cheque Return Memo issued by the bank.

• Only certain reasons (like insufficient funds, account closed, stop payment) attract criminal liability under Section 138 NI Act.

• Other reasons may be treated as technical or civil issues.

A cheque can bounce for financial reasons (like insufficient funds) or technical reasons (like signature mismatch or expired cheque). The exact cause is always recorded by the bank in a return memo.