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What to Do When a Cheque Bounces? Understanding Section 138 NI Act & 30-Day Legal Notice Rules

✍️ Advocate RK & Associates📅 2026-08-20⏱️ 5 min read
What to Do When a Cheque Bounces? Understanding Section 138 NI Act & 30-Day Legal Notice Rules - Advocate RK Legal Article

What is a Cheque Bounce?

When a cheque issued by a drawer towards a legally enforceable debt or liability is dishonoured by the bank due to reasons such as "Funds Insufficient", "Signatures Mismatch", or "Account Closed", it is commonly termed as a cheque bounce.

Under Indian law, dishonour of cheque is a criminal offence governed by Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

Step-by-Step Legal Procedure for Dishonoured Cheques

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1. Preserve the Bank Return Memo

When a cheque is dishonoured, the bank returns it along with an official 'Bank Return Memo' stating the reason for rejection. This document serves as primary evidence in court.

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2. Send Statutory Legal Notice Within 30 Days

As per Section 138 NI Act, the payee must issue a formal legal demand notice to the drawer within 30 days of receiving the Bank Return Memo. The notice gives the drawer 15 days to clear the cheque amount.

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3. Wait for the 15-Day Statutory Period

If the drawer pays the full cheque amount within 15 days of receiving the legal notice, no further legal action is initiated.

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4. File a Criminal Complaint Before the Magistrate

If the drawer fails to make payment within the 15-day period, a formal criminal complaint must be filed before the competent Judicial Magistrate Court within 30 days after the expiry of the notice period.

Penalties and Statutory Remedies

- Imprisonment: Punishment with imprisonment for a term which may extend to 2 years. - Monetary Fine: Fine which may extend to twice the amount (Double Amount) of the cheque. - Interim Compensation (Sec 143A NI Act): The court may order the drawer to pay up to 20% of the cheque amount as interim compensation during trial.

📌 Key Legal Takeaways

  • Issuing a legal demand notice within 30 days of receiving the bank memo is mandatory.
  • The drawer receives a statutory 15-day window to pay the cheque amount upon notice receipt.
  • Penalties under Sec 138 include up to 2 years imprisonment or fine up to double the cheque amount.
  • Cases can be settled mutually under Section 147 NI Act at any stage of court proceedings.

❓ Frequently Asked Questions (FAQs)

Can legal action be taken if a security cheque bounces?

Yes, if a security cheque was handed over in discharge of a pre-existing legally enforceable debt or liability, Section 138 NI Act applies.

Where should a cheque bounce complaint be filed?

Following statutory amendments, the complaint is filed before the court having territorial jurisdiction over the bank branch where the payee maintains their account.

Have a Legal Query Regarding This Topic?

Contact Advocate RK & Associates office at New Civil Court, Ramnagar, Roorkee for office consultation.