Cheque Bounce in Banking: Why Cheques Get Dishonoured and What Happens Afterwards
A cheque bounce can happen to anyone, whether because of insufficient funds, incorrect details, or a simple oversight. However, a dishonoured cheque is not always a minor banking issue. It can lead to bank charges, payment disputes, and even legal consequences in certain cases. Understanding why cheques bounce and what happens next can help you avoid unnecessary penalties and complications.
What is Cheque Bounce?
Cheque bounce is the dishonour of a cheque by a bank when it cannot process the payment due to insufficient funds, incorrect details, or other specified reasons, resulting in the cheque being returned unpaid.
How to Know If a Cheque Has Bounced?
You can know whether a cheque has bounced by:
- Receiving a Cheque Return Memo from the bank.
- Getting an SMS or email notification from your bank.
- Checking your bank statement or internet banking portal.
- Being informed by the payee or the collecting bank.
Common Reasons for a Cheque Bounce
A cheque may bounce for several reasons, including:
- Insufficient Funds: The issuer’s account does not have enough balance to cover the cheque amount.
- Signature Mismatch: The signature on the cheque differs from the specimen signature available with the bank.
- Cheque Validity Expired: The cheque is presented after its validity period, which is generally three months from the date of issue.
- Technical Errors: Overwriting, alterations, torn cheques, or discrepancies between the amount written in words and figures.
- Account-Related Issues: The account has been closed, frozen, blocked, or a stop-payment instruction has been issued.
What is the Cheque Bounce Notice Period?
- The payee must send a cheque bounce notice within 30 days of receiving the cheque return memo from the bank.
- The drawer then gets 15 days from receiving the notice to make the payment.
- If payment is not made within 15 days, the payee can file a complaint within 30 days after the expiry of the notice period.
What Happens When a Cheque Bounces?
A cheque bounce can have financial and legal consequences for the issuer.
- Cheque Bounce Charges: Banks usually levy cheque return charges or non-sufficient funds (NSF) fees on the issuer and, in certain cases, on the payee.
- Impact on Financial Reputation: Repeated cheque bounces can negatively affect an individual’s banking history and financial credibility.
- Legal Consequences: If a cheque bounces due to insufficient funds, the payee may initiate legal proceedings under Section 138 of the Negotiable Instruments Act, 1881, which can result in penalties, fines, or imprisonment in certain cases.
What is the Penalty for a Bounced Cheque?
When a cheque bounces, the issuer may face both bank charges and legal penalties, depending on the reason for dishonour.
- Bank Charges: Banks generally impose cheque bounce charges ranging from ₹150 to ₹750 or more per instance. The exact amount varies across banks and depends on the cheque amount and reason for dishonour.
- Loan EMI Bounce Charges: If the bounced cheque was issued for loan or EMI repayment, lenders may levy an additional penalty of ₹500 to ₹1,500, along with applicable taxes.
- GST on Charges: An 18% GST is generally applicable on cheque return charges and penalty fees imposed by banks and financial institutions.
Know the latest GST on gold!
- Legal Penalties: Under Section 138 of the Negotiable Instruments Act, 1881, if the drawer fails to make payment within 15 days of receiving a legal notice, cheque bounce due to insufficient funds may become a criminal offence. The court may impose a fine of up to twice the cheque amount, imprisonment of up to two years, or both.
The exact cheque bounce penalty depends on the bank’s policies, the reason for dishonour, and whether legal proceedings are initiated by the payee.
Can a Cheque Bounce Case Be Filed for Any Cheque?
No. A cheque bounce case under Section 138 of the Negotiable Instruments Act, 1881 can be filed only when the cheque was issued to discharge a legally enforceable debt or liability.
A cheque issued as a:
- Gift
- Donation
- Friendly gesture without legal liability
generally does not attract Section 138 proceedings.
This is an important legal nuance that many competitor blogs miss.
Is Cheque Bounce a Criminal Offence in India?
Yes, cheque bounce is a criminal offence in India under Section 138 of the Negotiable Instruments Act, 1881, if the cheque is dishonoured due to insufficient funds or because it exceeds the arranged amount in the account.
- The payee must send a legal notice within 30 days of receiving the cheque return memo.
- If the issuer does not make the payment within 15 days of receiving the notice, the payee can file a criminal complaint.
- Upon conviction, the issuer may face imprisonment of up to two years, a fine of up to twice the cheque amount, or both.
- Cheque bounce due to technical reasons, such as a signature mismatch or overwriting, does not automatically result in criminal liability.
Know how to write a cancelled cheque!
Disclaimer– The rankings and figures in this article have been compiled from multiple verified reports, credible news sources, and public financial data available as of 2026.
All values are approximate and may vary with newer updates, revisions, or changes in official records.
FAQs
A cheque bounce occurs when a bank refuses to honour a cheque because of insufficient funds, signature mismatch, account closure, overwriting, or other reasons. It is also known as cheque dishonour.
Yes, a dishonoured cheque and a cheque bounce are the same. Both terms refer to a cheque that has been returned unpaid by the bank.
If a cheque bounces due to insufficient funds, the issuer may be liable to pay bank charges and can face proceedings under Section 138 of the Negotiable Instruments Act if the cheque was issued against a legally enforceable debt.
Cheque bounce charges vary across banks and generally range from around ₹100 to ₹750 or more, depending on the bank’s policies and the reason for dishonour.
The penalty for a bounced cheque can include bank charges, compensation, a fine of up to twice the cheque amount, imprisonment of up to two years, or both, depending on the circumstances of the case.
A cheque is generally valid for three months from its date of issue and must be presented within this validity period.
The process generally involves cheque dishonour, issuance of a cheque return memo, sending a legal notice to the drawer, waiting for the statutory payment period, and filing a complaint before the appropriate court if payment is not received.
You can avoid a cheque bounce case by maintaining sufficient account balance, verifying cheque details, avoiding signature mismatches, monitoring account activity regularly, and resolving payment issues promptly.
Yes, cheque bounce due to insufficient funds is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881. The issuer may face imprisonment of up to two years, a fine of up to twice the cheque amount, or both.
Recent provisions allow courts to order interim compensation of up to 20% of the cheque amount under Section 143A of the NI Act. Courts also increasingly permit electronic service of summons through email and messaging platforms to speed up proceedings.
Yes, cheque bounce is a bailable offence in India. The accused can usually obtain regular or anticipatory bail upon appearing before the court.
A Section 138 case is a quasi-criminal proceeding. It is tried in a criminal court, but its primary objective is the recovery of money owed to the payee.
Yes, a Magistrate may issue a bailable or non-bailable warrant if the accused repeatedly ignores court summons and fails to appear before the court.
No, you cannot file the case immediately after the cheque bounces. You must first send a legal notice within 30 days and allow the drawer 15 days to make payment. The cause of action arises after this period, and the complaint must then be filed within the prescribed time limit.
A person convicted under Section 138 of the Negotiable Instruments Act may face imprisonment of up to two years, a fine of up to twice the cheque amount, or both.
The police generally do not investigate standard cheque bounce cases. Their role is usually limited to executing court summons or warrants, unless the matter also involves allegations of fraud or cheating.
