A dishonoured cheque can disrupt business operations, damage trust, and create financial strain. Fortunately, Indian law offers recourse under Section 138 of the Negotiable Instruments Act, 1881, which criminalizes cheque bounce due to insufficient funds or other reasons.

To invoke Section 138, certain legal conditions must be met. First, the cheque must have been issued for a legally enforceable debt or liability. If it is returned unpaid due to “insufficient funds” or “exceeds arrangement,” the payee must send a written demand notice to the drawer within 30 days of receiving the return memo from the bank. This notice should clearly demand payment of the cheque amount and provide a 15-day window to settle the dues.

If the drawer fails to pay within this 15-day period, the payee may initiate a criminal complaint in the jurisdictional magistrate court within 30 days from the expiry of that period. Section 138 provides for imprisonment up to two years, a fine up to twice the cheque amount, or both.

It’s important to maintain proper documentation such as the original cheque, the bank’s dishonour memo, a copy of the legal notice, and postal/courier proof of delivery. These are crucial for substantiating a complaint.

While Section 138 is a strong legal remedy, courts encourage parties to explore amicable settlement wherever possible. Cheque bounce cases often find resolution through mediation or compromise between parties.

Understanding your rights and obligations under Section 138 helps individuals and businesses approach such situations with clarity and confidence. Legal consultation is advisable to ensure the process is followed correctly and deadlines are not missed.