Executive Summary: Cheque Bounce Law & Procedure

Direct Legal Answer: Dishonour of a cheque due to insufficient funds, account closed, or stop payment is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) punishable with up to 2 years imprisonment, fine up to double the cheque amount, or both. To maintain a valid case, you must send a statutory Legal Demand Notice within 30 days of receiving the Bank Return Memo, give 15 days to the drawer to pay, and file the criminal complaint within 30 days after the payment window expires. Complainants can claim up to 20% interim compensation under Section 143A.

Because statutory timelines in cheque bounce litigation are strictly construed, missing a deadline can lead to dismissal of the criminal complaint.

Section 143A: 20% Interim Compensation for Complainant

Under Section 143A of the NI Act, the Trial Court can direct the accused drawer to pay interim compensation up to 20% of the cheque amount to the complainant:

  1. Payable in a summary trial where the accused pleads not guilty.
  2. Must be deposited within 60 days (extendable by 30 days) from the date of the order.
  3. If the accused is eventually acquitted, the complainant must repay the amount with bank interest within 60 days.

Frequently Asked Questions (FAQs)

What is the maximum punishment for a cheque bounce offence?

Under Section 138 NI Act, the court can sentence the convict to up to 2 years imprisonment, or a fine up to double (2x) the cheque amount, or both.

Can cheque bounce matters be settled outside court?

Yes. Section 138 offences are compoundable under Section 147 NI Act. Parties can record settlement terms before the court or in National Lok Adalat at any stage of proceedings.

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