Introduction
A cheque bounce occurs when a bank refuses to honor a cheque due to insufficient funds, signature mismatch, account closure, or other reasons. Under Section 138 of the Negotiable Instruments Act, 1881, dishonoring a cheque for insufficient funds is a criminal offense. The law provides punishment for the drawer and grants legal remedies to the payee.
This article explains the punishment for a cheque bounce case, the legal process, defenses, and frequently asked questions (FAQs).
Legal Provision: Section 138 of the Negotiable Instruments Act
Section 138 of the NI Act, 1881, makes cheque dishonor due to insufficient funds or any other reason a punishable offense, provided certain conditions are met.
Key Conditions Under Section 138 NI Act
For a cheque bounce to be considered an offense under Section 138, the following conditions must be fulfilled:
- Cheque Issued for Legal Liability:
- The cheque must have been issued to discharge a legally enforceable debt or liability.
- Post-dated cheques issued as security may not always attract Section 138.
- Cheque Dishonored by Bank:
- The cheque must be returned unpaid by the bank due to insufficient funds or any other reason (e.g., signature mismatch, account closure).
- Legal Notice Sent to Drawer:
- The payee must send a legal notice to the drawer within 30 days from the date of cheque dishonor.
- The notice should demand payment within 15 days of receiving the notice.
- Non-Payment by Drawer:
- If the drawer fails to make the payment within 15 days, the payee can file a criminal complaint under Section 138 NI Act.
Punishment for Cheque Bounce Under Section 138 NI Act
If a cheque bounce case is proven, the punishment under Section 138 includes:
- Imprisonment:
- The accused can be sentenced to up to two years of imprisonment.
- Fine:
- The accused can be fined up to twice (double) the cheque amount.
- Example: If the cheque amount is ₹5 lakh, the fine can be ₹10 lakh.
- Compensation to the Payee:
- The court can order the accused to compensate the payee for the loss suffered.
- Attachment of Property:
- In some cases, if the accused fails to pay the fine, their property may be attached.
- Civil Liability (Recovery of Cheque Amount):
- The complainant can also file a civil suit under Order 37 of the CPC to recover the cheque amount.
Legal Process for a Cheque Bounce Case
Step 1: Cheque Dishonor by Bank
- The payee deposits the cheque in the bank.
- If it bounces, the bank provides a dishonor memo stating the reason for rejection.
Step 2: Sending a Legal Notice
- The payee must send a demand notice to the drawer within 30 days of cheque dishonor.
- The notice should demand payment within 15 days.
Step 3: Filing a Complaint in Court
- If the drawer does not pay within 15 days, the payee can file a criminal complaint within 30 days in a Magistrate Court under Section 138.
- The complainant must submit:
- Cheque dishonor memo
- Copy of legal notice
- Bank statement proving dishonor
Step 4: Court Proceedings & Trial
- The court issues summons to the accused.
- Both parties present evidence and witnesses.
- If the court finds the accused guilty, it imposes punishment under Section 138 NI Act.
Defenses Available to the Accused
The accused can raise the following defenses in a cheque bounce case:
- No Legally Enforceable Debt:
- If the cheque was given as a gift, donation, or security deposit, Section 138 does not apply.
- Forgery or Stolen Cheque:
- If the cheque was stolen and misused, the accused can contest the claim.
- Cheque Was Post-Dated:
- If the cheque was post-dated and presented before the due date, it may not attract Section 138.
- Bank Error:
- If the cheque bounced due to technical reasons (e.g., signature mismatch, wrong date), the drawer can contest the case.
- Payment Already Made:
- If the drawer had already cleared the debt through another mode, the complaint can be challenged.
Frequently Asked Questions (FAQs)
Q1. Can I go to jail for a cheque bounce case?
Yes, under Section 138 NI Act, the court can sentence the accused to up to two years of imprisonment. However, in most cases, courts impose a fine and compensation instead of jail time.
Q2. Can the cheque issuer avoid punishment?
Yes, if the drawer makes the payment within 15 days of receiving the legal notice, no case can be filed.
Q3. Can I recover my money after a cheque bounce?
Yes, you can file a Section 138 NI Act case (criminal) and a civil suit for money recovery under Order 37 of CPC.
Q4. What is the time limit to file a cheque bounce case?
The complaint must be filed within 30 days from the expiry of the 15-day notice period.
Q5. Can a cheque bounce case be settled out of court?
Yes, parties can settle the case before or after filing a complaint. The accused can pay the amount and request case withdrawal.
Q6. Can a company be prosecuted for a cheque bounce?
Yes, if a cheque issued by a company bounces, the company and its directors/officers in charge can be held liable.
Q7. Is a cheque bounce case a civil or criminal offense?
A cheque bounce is a criminal offense under Section 138 of NI Act, but the payee can also file a civil suit to recover the money.
Q8. What is the maximum fine for a cheque bounce case?
The court can impose a fine up to twice the cheque amount.
Q9. Can I file a case if a cheque bounces due to a signature mismatch?
Yes, a cheque bounce due to signature mismatch is covered under Section 138, provided there is a legally enforceable debt.
Q10. Can a second cheque bounce case be filed if the first notice period has expired?
Yes, if the same cheque is re-presented and bounces again, a fresh legal notice can be sent, and a new complaint can be filed.
Conclusion
A cheque bounce is a serious financial offense under Section 138 of the NI Act, attracting punishment of up to two years imprisonment and a fine up to double the cheque amount. The payee has a legal remedy to recover their money through criminal and civil proceedings.
To avoid legal issues, always maintain sufficient funds before issuing a cheque and ensure proper compliance with banking rules. If facing a cheque bounce case, consult a lawyer immediately to take the necessary legal steps.
Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.
Adcocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)
Contact: 88271 22304