Cheque Bounce: Reasons, Penalties, and What to Do

A cheque bounce happens when a bank refuses to honour a cheque presented for payment. It is not just a banking inconvenience. A bounced cheque can lead to criminal charges under the Negotiable Instruments Act and can seriously damage your financial reputation. Here is everything you need to know about cheque bounces.

What is a Cheque Bounce?

A cheque bounce (also called dishonour of cheque) occurs when the bank on which a cheque is drawn returns it unpaid. The cheque fails to clear, and the payee does not receive the money.

A bounced cheque is typically returned to the payee’s bank along with a cheque return memo explaining the reason for non-payment.

Common Reasons for a Cheque Bounce

– **Insufficient funds:** The most common reason. The account balance is lower than the cheque amount.
– **Account closed:** The account from which the cheque was drawn has been closed.
– **Signature mismatch:** The signature on the cheque does not match the specimen signature in the bank’s records.
– **Overwriting or alterations:** Corrections on the cheque make it invalid.
– **Post-dated cheque presented early:** The cheque is presented before the date written on it.
– **Stop payment instruction:** The account holder has asked the bank to stop payment on the cheque.
– **Stale cheque:** The cheque is more than 3 months old (validity expired).
– **MICR band torn or damaged:** The cheque cannot be processed through the clearing system.

Charges for Cheque Bounce

When a cheque bounces:

– The payee’s bank charges the payee a return cheque fee (typically Rs. 150 to Rs. 300).
– The drawer’s bank charges the drawer a dishonour fee (typically Rs. 200 to Rs. 500).
– Some banks charge both parties.

These charges are debited automatically from the respective accounts.

Legal Consequences Under Section 138

Under Section 138 of the Negotiable Instruments Act, 1881, cheque dishonour due to insufficient funds or account closure is a criminal offence. The consequences are serious:

– The payee must send a legal notice to the drawer within 30 days of receiving the cheque return memo.
– The drawer has 15 days to make the payment after receiving the notice.
– If payment is not made within 15 days, the payee can file a criminal complaint.
– Conviction can result in imprisonment of up to 2 years or a fine of up to double the cheque amount, or both.

Courts across India handle millions of Section 138 cheque bounce cases every year.

What to Do If Your Cheque Bounces

**If you are the payee (receiver):**
1. Collect the cheque return memo from your bank.
2. Send a legal notice to the drawer within 30 days.
3. If not paid within 15 days of the notice, file a complaint under Section 138 at the appropriate court.

**If you are the drawer (cheque issuer) and the cheque has bounced:**
1. Check the reason (insufficient funds, signature mismatch, etc.).
2. If it bounced due to funds shortage, immediately arrange funds and inform the payee.
3. Issue a fresh cheque or make payment via NEFT/RTGS.
4. Avoid issuing post-dated cheques unless you are certain of your account balance on that date.

How to Avoid Cheque Bounces

– Always verify your account balance before issuing cheques.
– Ensure your signature matches the bank specimen.
– Do not overwrite or alter cheques.
– Write clearly and correctly, especially the payee name, amount in figures and words.
– Set up alerts for low balances in your bank account.

Key Takeaways

– A cheque bounce means the bank refuses to honour the cheque and returns it unpaid.
– Common reasons: insufficient funds, signature mismatch, overwriting, stale cheque.
– Both the payee and drawer are charged bank fees on a bounce.
– Under Section 138 of the Negotiable Instruments Act, cheque bounces due to insufficient funds are criminal offences.
– The payee must send a legal notice within 30 days of the return memo.
– Conviction for Section 138 offence can result in 2 years imprisonment or double the cheque amount as fine.

Maintaining adequate balances and keeping your account documents up to date are the best defences against cheque bounces and their legal consequences.