Dishonour of Cheque: Procedure for legal recourse of cheque bounce in India

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A cheque has been one of the most commonly used methods for payments. In simple words, cheque is an instrument given by the account holder (called the ‘drawer’) to a specific person (called the ‘payee’), directing the drawer's bank (called the ‘drawee’) to make payment of a specified amount to the payee. However, cases of cheque dishonour are very common these days. Provisions of Section 138 of the Negotiable Instruments Act, 1881 are applicable for such cases of cheque dishonour. According to Section 138, cheque dishonour is a criminal offence and is punishable with imprisonment up to two years or with monetary penalty or with both. It also lays down detailed legal procedure to be followed for recovery of dishonoured cheque amount

"...In India, a cheque is still the most common instrument for transfer of funds. What is surprising is that even after so many years, people are still unaware about the remedies and laws that protect them against a bounced cheque... "
- Adv Najma Shaikh, Bombay High Court

What is dishonour of cheque?

In common terms, the non-payment of a cheque for any reason is called a ‘dishonour of cheque’ or ‘cheque bounce’.


There can be two main reasons for dishonour of a cheque:

  • A technical default in the cheque (such as a mismatch of signatures, disparity among the amounts written in figures and in words, etc.)
  • Insufficient funds in the account of the drawer.

  • In the first case, where the non-payment is owing to a technical default, the payee can approach the drawer to issue a fresh cheque. If the drawer refuses to replace the defective cheque or if the replacement cheque too is found defective, the remedy under law is to file a civil case for breach of contract. Under this route, the amount of the payment, damages, and cost of legal fees can be recovered from the drawer.

    If the non-payment is because of lack of funds in the drawer’s account, the payee can recover the amount by filing a civil case. However, if the cheque was given in discharge of a debt or a liability towards the payee, the dishonour of the cheque amounts to a criminal offence and recourse is available under Section 138 of the Negotiable Instruments Act, 1881.

    The other valid reasons for a cheque dishonour is that the account on which the cheque has been issued is closed or a 'stop payment instruction' has been given by the drawer of the cheque to the bank. These reasons stand as valid grounds for action against the drawer of the cheque.


    Upon dishonour of a cheque, the bank on which the cheque is drawn (the drawer’s bank) returns the cheque along with a note to the payee’s bank. This note called the ‘Cheque Return Memo’, records the fact of dishonour and shows the reason for such a dishonour. The payee can re-deposit the cheque during its validity (within 3 months from its stated date of issue) or can proceed to take legal action. The payee has to provide a written notice to the drawer if he decides to proceed legally giving the payee enough time to repay the amount.

    What are the exceptions to cheque dishonour?

    The Indian Courts have time and again held that the cheque can be said to be dishonoured only when it has been issued to to discharge a legally enforceable debt or liability towards the payee. Dishonour is no default entailing a criminal proceedings if the cheque has been issued as a gift, donation or charity.

    What are the requirements for recovery under Section 138?

    To avail the benefits of Section 138, the payee should ensure that the following conditions are fulfilled:

    • The drawer must have drawn the cheque on a bank account maintained by him/her.
    • The cheque should have been issued in discharge, in whole or in part, of any debt or other liability.
    • The cheque should have been presented to the bank within its validity period.
    • The cheque should have been returned by the bank as unpaid, either because of insufficiency of funds and no other reason.
    • The payee makes a demand for payment (cheque dishonour notice) within 30 days from the dishonor of the cheque.
    • The drawer had failed to make payment of the cheque amount within 15 days of the receipt of the said notice.
    • The complaint should have been filed within one month from the expiry of 15 days mentioned in the demand notice for reminder of payment.

    Some points to be considered:

    • In case the payee is not able to file a complaint under Section 138, under the above mentioned reasons, then the person can file a civil suit for recovery of money. However, the limitation for filing a civil suit for recovery of money is 3 years.
    • Even if the cheque is returned on the ground of “closure of the account”, it will be an offence under Section 138
    • If the cheque is returned unpaid with the advice from bank that “account operation jointly, other Director’s/joint holders signature required”, then this amounts to dishonor of the cheque within the meaning of Section 138
    • If a cheque is returned unpaid due to stoppage of payment by the drawer, then the drawer has to prove that he had sufficient funds in his account at the time of return of cheque and the stoppage was for some other justifiable reason.

    What are the steps for recovery of dishonoured cheque amount?

    The Negotiable Instruments Act, 1881 require that the payee should follow a certain procedure to claim relief under Section 138.

    The steps to be taken by the payee for recovery of the cheque amount are as under:

    • Step 1: On dishonour of cheque, collect the dishonoured cheque and cheque return memo from the bank immediately.
    • Step 2: Within 30 days from the date of dishonour of the cheque, send a demand notice to the drawer giving a brief background of the transaction, intimation about the fact of the dishonour and requiring the drawer to pay the cheque amount within 15 days from the date of receipt of the demand notice.
    • Step 3: If the drawer fails to make the payment within the notice period of 15 days, then the payee can file a complaint against the drawer under Section 138 of the Negotiable Instruments Act, 1881. The complaint should be filed before the magistrate within 30 days from the end of notice period.
    • Step 4: The court will issue summon to the drawer of the dishonoured cheque. On receiving the summons the drawer has to be present in court and file an appearance through his advocate. After the parties complete their written pleadings and lead evidence to support their case, the magistrate will pass an appropriate order in the matter.

    What are the documents to be filed alongwith the complaint?

    The payee should have the following documents ready for recovery of the cheque amount:

    • Agreement/contract between the drawer and the payee including invoices, bills, etc, against which the dishonored cheque was issued.
    • Acknowledgement, if any, of goods or services received by the drawer (In case of contracts for supply of goods and services)
    • Dishonoured cheque.
    • Cheque return memo from bank stating reason for dishonor of cheque
    • Copy of the demand notice sent to the drawer and proof of dispatch of the demand notice(if any)
    • Postal acknowledgment for delivery of demand notice to the drawer

    What is the penalty imposed under Section 138?

    If the case is proved against the drawer of the dishonoured cheque, then the magistrate can levy a fine on the drawer, which may be up to twice the amount of the dishonoured cheque and/or imprisonment for a period up to two years. Also if the drawer repeats the offence more than once then the drawee bank has a right to stop the cheque facility to the drawer and close his account for an indefinite period.

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