Legal Definition

A cheque bounce occurs when the bank refuses to honour a cheque presented for payment, typically due to insufficient funds in the account of the drawer (the person who wrote the cheque).

Criminal Offense

Cheque bouncing is considered a criminal offense under Section 138 of the Negotiable Instruments Act. The drawer of the dishonoured cheque can face criminal liability, including imprisonment and/or a monetary penalty.

Notice Period

In case of a cheque bounce, the payee (the person to whom the cheque is issued) must serve a legal notice within 30 days of receiving information about the dishonour. The drawer then has 15 days to make the payment.

Criminal Complaint

The payee can file a complaint in the appropriate magistrate court within 30 days from the expiry of the 15-day notice period. The court may issue a summons to the drawer to appear and defend the case.

Punishment

If the court finds the drawer guilty, it may impose a monetary penalty, which is typically twice the amount of the dishonoured cheque. Additionally, the court may order imprisonment for a term that may extend to two years.

Compensation to Payee

The court may also order the drawer to compensate the payee for any financial loss suffered due to the cheque bounce.

Appeal

Both the drawer and the payee have the right to appeal against the court's decision. The appeal process involves higher courts, and the legal proceedings continue until a final resolution is reached.