What is a Cheque Bounce?

The term cheque bounce literally means that a cheque issued by an individual has been returned without being honored.

There are many reasons why a cheque may bounce and thus when this happens, the bank sends back the cheque unpaid to the payee, usually they provide a comment why the cheque was rejected. The main causes of cheque bounce are that there is not enough money in the account to honor the cheque, the account may have been closed or there is a failure in matching the signature on the cheque. Any of these can result in the cheque being returned and this may cause real problems involving money and law to the two parties who are involved.

• Insufficient funds :  One of the major causes of a cheque bounce is where the drawer does not have sufficient cash in his/her account to meet the amount of the cheque. In the case of a bounced cheque, if the account does not contain enough money to meet the amount written on the cheque, the bank will not accept the cheque.


• Account closure :   If the cheque is drawn on an account that has been closed, the bank cannot pay the cheque. This is usually witnessed when an account holder fails to rearrange cheque books after closing an account.


• Signature mismatch :   In case a person signs the cheque and the signature does not correspond to the one stored in the records of the bank, the cheque will be dishonored. This can be as a result of modification in the signature over time or where the signature on the cheque is not the same as the person to whom the cheque is made payable to.

• Financial Penalties:  Bouncing of a cheque exposes the maker to many financial penalties. This involves charges from the banks and any litigation cost arising from the recipient of the cheque. These fines may add up to a lot, especially if the problem is not solved promptly.


• Criminal Prosecution:   According to Section 138 of the Negotiable Instruments Act, issuing a cheque that bounces is a punishable offense. Criminal prosecution for the issuer may extend to punishment in the form of a fine, twice the cheque amount, or imprisonment that might extend up to two years.


• Civil Suits:   In addition to this criminal liability, he may also be exposed to a civil action by the payee for recovery of the amount related to the bounced cheque. This entails further legality expenditure and financial burden on the issuer.

• Original Cheque:  The original cheque is the main evidence in a Cheque Bounce Case. It will be presented as evidence that a payee does indeed attempt to make a payment, and such documentation is essential in the situation of a court case.


• Bank Memo Showing Cheque Bounce:   The bank memo is issued by the bank at the instance when a cheque gets dishonored. This document mentions the precise reason for cheque bounce, like insufficient funds or mismatched signature, and is very essential to back up a claim.


• Demand Notice and Proof of Delivery:   A demand notice is issued to the drawer formally, requiring them to make the payment within the specified period therein. This is confirmed by proof of delivery through a registered mail receipt that the notice has been received by the drawer and hence may be prosecuted further.

The first thing one has to do after receiving a legal notice with regard to the bounced cheque is to either reply to the legal notice or make the payment of the face value of the cheque. It is always better to seek legal advice from an attorney who specifically deals with bounced cheque matters. In cases where the cheque amount is paid instantly, the problem can usually be resolved on the spot.

The drawee can arrest the cheque bearer if he fails to respond to the legal notice or to pay the cheque amount within the stipulated 15 days In a case where an issuer fails to deposit the cheque amount, the drawee can present a formal complaint in court as a way of demanding justice against the cheque issuer.

In today's commercial world, knowing what cheque bouncing is and where it can take one could be pretty important. This means financial penalties besides possible prosecution under Section 138 of the Negotiable Instruments Act. If you ever issue or receive cheques, knowing the legal provisions and the law related to such issues will help keep you out of trouble or at least help you safeguard your interests. If faced with a cheque bounce situation, the reaction must be swift. A proper demand notice, collection of required documents, and adherence to the proper legal procedure can make a huge difference in the resolution of the matter. Every case is different; likewise, cheque bounce laws have too many complexities to be dealt with alone.Don't let a bounced cheque derail your financial journey contact Litem Legalis today for reliable legal support