Abstract
A Cheque is not a mere piece of paper, as it personifies trust, obligation and assurance of payment. A cheque is widely used for commercial and personal transactions. However, when a cheque is returned unpaid, it is referred to as a Cheque Bounce, which often leads to legal consequences beyond financial embarrassment. In India, Section 138 of the Negotiable Instruments Act, 1881 (NI Act), governs the cheque bounce matters and provides legal remedies available to the payee when a cheque bounces. The initiating part of this legal matter is serving a legal notice to the payer.
Introduction
Cheque Bounce is a significant legal issue that arises when a bank dishonours a cheque due to an insufficient balance or other valid reasons. It is a Criminal offence under Section 138 of the Negotiable Instruments Act, which lays down the statutory procedure which is to be duly followed, in which the first step is to serve a notice properly. Section 138 lays down the legal framework, notice requirements, procedural timelines, and practical implications of cheque bounce cases in India.
Understanding Cheque Bounce
A cheque will be considered bounced or dishonoured when a bank refuses to honour it on presentation. Section 138 attracts criminal liability when a cheque bounces due to various reasons, such as insufficient funds, a closed account, or technical errors.
Legal Framework Under Section 138 Dishonour of a cheque makes it criminally punishable under Section 138 of the Negotiable Instruments Act if:
- The cheque is drawn for a legally enforceable debt or liability.
- The cheque must be presented within its validity period.
- The bank returns it unpaid.
- A legal notice demanding payment is issued within time.
- The drawer fails to pay within the notice period.
In Section 138, the penalty includes imprisonment for up to two years, a fine of up to twice the cheque amount, or both.
Purpose of Legal Notice
First mandatory legal step when a cheque bounces case is to serve a legal notice,
which must be strictly complied with. Three primary purposes are served:
- Official Intimation: Drawer must be informed about the dishonour of the
cheque, and the drawee must demand payment. - Statutory Compliances: Satisfies the precondition for prosecution under
Section 138. - Possibility of Cooperative Settlement: Before approaching the court, the law
gives the cheque issuer an opportunity to sort out the problem peacefully. Instead of rushing into litigation, both sides are encouraged to talk and resolve the matter through mutual understanding. This step helps avoid the stress of court proceedings and allows the issue to be settled in a practical way, saving everyone involved valuable time, legal expenses, and avoidable disputes.
Timeline
At the same time, the law lays down strict timelines that must be followed. The
cheque must be taken to the bank and deposited while it is still valid. As of now, this
period is three months from the date written on the cheque.
If the cheque is not presented within this time, it is treated as stale, and the holder may lose the right to take legal action if the cheque is later dishonoured. Sending the legal notice (within 30 days)
Once the bank issues the cheque return memo, the person who received the cheque
must send a written legal notice to the cheque issuer. This notice has to be sent within 30 days of the date the memo is received. The purpose of this notice is to formally inform the issuer about the dishonour and give them a chance to make the payment.
Time given to respond (15 days)
After the notice reaches the cheque issuer, the law gives them 15 days to pay the cheque amount. This period is meant to allow the matter to be resolved without going to court.
Filing a complaint
If the payment is not made within these 15 days, the next step is to approach the court. The complaint must be filed within 30 days after the 15-day notice period ends. Missing any of these deadlines can seriously weaken the case and may even result in it being dismissed
What a Proper Legal Notice Should Contain
A legal notice must be drafted carefully and clearly. It usually mentions:
- Details of both parties – full names and addresses of the person who issued
the cheque and the person who received it. - Cheque details – cheque number, date, amount (both in words and figures),
and the bank and branch on which it was drawn. - Dishonour details – the date on which the cheque was returned and the reason
mentioned by the bank. - Apparent demand for payment – an explicit demand asking the cheque
issuer to pay the full amount. - Time limit – a clear statement that payment must be made within 15 days of
receiving the notice. - Legal warning – a reference to the legal consequences under Section 138 of
the Negotiable Instruments Act if payment is not made.
To support the notice, copies of the dishonoured cheque, the bank’s return memo, and proof that the notice was delivered are usually attached.
How the Notice Is Served
Most legal notices are sent by registered post with acknowledgement due or
through an advocate. This method provides solid proof that the notice was delivered. While some people also send notices through email or WhatsApp as an additional step, traditional postal delivery is still considered the safest and most reliable method in court.
What Happens After the Notice
If payment is made in time
If the cheque issuer pays the amount within the 15-day period, the issue ends there. No court case is required.
If payment is not made
If the issuer ignores the notice or fails to pay, the payee can file a criminal complaint
under Section 138 before the appropriate Magistrate’s Court.
Settlement or compromise
Even after a case is filed, both sides can still negotiate and settle the matter. Courts
today encourage such settlements, and in many cases, a compromise can prevent
imprisonment.
Legal and Practical Consequences
- Criminal liability – A conviction under Section 138 can lead to imprisonment
of up to two years, a fine of up to twice the cheque amount, or both. - Civil remedies – Apart from the criminal case, the payee can also file a civil
case to recover the money. - Strict timelines – Courts strictly enforce the timelines and notice
requirements. Even small procedural mistakes can result in the complaint
being rejected.
Key Case Laws Rangappa v. Sri Mohan (Supreme Court)
This judgment is one of the cornerstones of cheque bounce law in India. The
Supreme Court clearly explained that a case under Section 138 can succeed only if
the cheque was issued to discharge a legally enforceable debt or liability. The
Court also clarified how presumptions under the Negotiable Instruments Act operate and what an accused must show to rebut them. Because it lays down the essential requirements of the offence in a practical manner, this case is frequently relied upon by courts while deciding cheque dishonour complaints.
Damodar S. Prabhu v. Sayed Babalal H (Supreme Court)
In this landmark ruling, the Supreme Court dealt with the overall working of Section 138 proceedings. The Court discussed how such cases should be tried, the role of compounding (settlement), and why courts should encourage early resolution of cheque bounce disputes. It also clarified that offences under Section 138 are to be tried by a Judicial Magistrate First Class. The judgment is especially important for promoting settlements and reducing unnecessary criminal litigation.
Natarajan v. Sama Dharman (Supreme Court)
This case focuses on an important practical question—whether a cheque bounce complaint can be filed when the underlying debt is already time-barred. The Supreme Court examined the concept of limitation and stressed that only debts that are legally enforceable can attract liability under Section 138. The ruling helps courts and litigants understand how the age of a debt can affect the maintainability of a cheque dishonour case.
Together, these decisions shape the core principles of cheque bounce law, guiding courts on enforceable debt, procedural fairness, and the scope for settlement under Section 138 of the Negotiable Instruments Act
Conclusion
In cheque bounce cases, a legal notice is not just a formality—it is the foundation of the entire legal process. Careful drafting, timely action, and proper service of the notice are crucial. Following the law step by step not only strengthens the case but also opens the door for settlement, helping both parties resolve the dispute without unnecessary hardship
