- In commercial transactions and personal dealings alike, cheques remain one of the most widely used modes of payment in India. However, when a cheque bounces due to insufficient funds, closure of account, or any other reason, it can cause financial loss and disrupt trust between parties. To address this problem, the law in India provides a strong remedy under Section 138 of the Negotiable Instruments Act, 1881. This provision makes cheque dishonour a criminal offence, ensuring accountability and trust in financial dealings.
- When a cheque is dishonoured, the bank issues a “cheque return memo” stating the reason. The most common reasons include insufficient funds, signature mismatch, or exceeding the arrangement with the bank. While occasional errors may occur, frequent dishonour reflects irresponsibility and can harm business relationships. To prevent misuse, the law has laid down a clear procedure that balances the rights of both parties.
- The aggrieved party must first issue a written demand notice to the drawer within 30 days of receiving the return memo. This notice requires the drawer to make payment within 15 days. If the payment is not made within this period, the complainant acquires the right to file a criminal complaint under Section 138 before the Magistrate. The offence is punishable with imprisonment up to two years, a fine which may extend to twice the amount of the cheque, or both.
- It is important to understand that the purpose of this law is not merely to punish but to ensure compliance. In most cases, the threat of prosecution itself is enough to make the drawer pay the amount. Courts often encourage settlement, and compounding of the offence is allowed if both parties agree. This ensures quick resolution without lengthy trials.
- Several Supreme Court judgments have emphasized that cheque dishonour is a serious matter affecting the economy. The Court has encouraged the use of summary trials and mediation to reduce delays. With the rise of digital banking, the number of cheque bounce cases has reduced, but they remain a significant portion of criminal complaints in India.
- For individuals and businesses, the practical takeaway is to always preserve the cheque, return memo, and copy of the notice. Timely action is crucial because missing the 30-day or 15-day deadlines can weaken the case. On the other hand, drawers must ensure that they do not issue cheques without sufficient funds, as this could lead not only to financial liability but also to criminal prosecution.
- In conclusion, Section 138 of the Negotiable Instruments Act is a powerful tool to maintain trust in financial transactions. By criminalizing cheque dishonour, the law compels accountability and ensures that individuals and businesses can rely on cheques as a secure method of payment.
