A bounced cheque is not just a breach of trust; under Indian law, it is a criminal offence. Section 138 of the Negotiable Instruments Act, 1881, governs the law regarding the dishonour of cheques. If you have received a bounced cheque, you have strict timelines to follow to initiate legal action.

Essential Conditions for Section 138

For a cheque bounce to be considered an offence under Section 138, the following conditions must be met:

  • The cheque must have been issued towards the discharge of a legally enforceable debt or liability.
  • The cheque must be presented to the bank within its validity period (usually 3 months).
  • The cheque must be returned unpaid due to "Insufficient Funds" or "Account Closed".

Step-by-Step Legal Process

Step 1: Sending the Demand Notice

Within 30 days of receiving the cheque return memo from the bank, you must send a legal demand notice to the drawer (the person who issued the cheque) demanding payment. This notice should ideally be drafted by a lawyer.

Step 2: The 15-Day Waiting Period

After the drawer receives the notice, they are given a statutory period of 15 days to make the payment. If payment is made within this period, no further legal action can be taken.

Step 3: Filing the Complaint

If the drawer fails to pay within 15 days, the payee (you) has 30 days to file a criminal complaint in the competent Magistrate Court. This means the case must be filed within 30 days from the expiry of the 15-day notice period.

Step 4: Court Proceedings

The court will examine the complainant and, if satisfied, issue summons to the accused. If the accused pleads guilty, the court will pass a sentence. If not, the trial commences with evidence, cross-examination, and arguments.

Penalties

If convicted, the drawer can face imprisonment for up to two years, or a fine which may extend to twice the amount of the cheque, or both.

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