A cheque returned unpaid is one of the most common commercial disputes. It is also one of the few where missing a deadline can cost you the whole case.
When is it an offence?
Under Section 138 of the Negotiable Instruments Act, 1881, it is an offence where a cheque issued to discharge a legal debt or liability is returned unpaid because of insufficient funds, or because it exceeds the amount arranged with the bank. The cheque must have been presented within its validity, currently three months from the date on it.
The timeline for the person who received the cheque
- Within 30 days of receiving the bank's information that the cheque was dishonoured, send a written demand notice to the drawer.
- The drawer then has 15 days from receiving the notice to pay.
- If payment is not made, a complaint may be filed in court within one month after those 15 days expire.
If you are the drawer
Respond to the notice promptly. Payment within the 15 days ends the matter. If you dispute the debt, a reasoned reply, and preserving evidence such as invoices and correspondence, are essential.
Consequences
The offence is punishable with imprisonment of up to two years, or a fine of up to twice the cheque amount, or both. Courts can also direct interim compensation in appropriate cases. Many of these matters are resolved by settlement, even after a complaint is filed.
Every deadline in a cheque bounce case is strict. Act on the day the return memo arrives.
Keep the original cheque, the bank's return memo, the notice and the proof of its delivery. Together they form the core of the case.