A bounced cheque is often referred to as a dishonored cheque. A cheque is one of the oldest and most trusted financial instruments for making payments. But what happens when a cheque you deposit or issue gets rejected by the bank? This is what we call a cheque bounce. It can be frustrating, embarrassing, and even legally troublesome.
When a cheque is returned unpaid, the issuer could encounter bank fees, potential lawsuits, and harm to their credit rating, whereas the payee might find it difficult to reclaim the funds. Under Section 138 of the Negotiable Instruments Act, 1881, writing a cheque without enough funds is a criminal act, which can result in fines or imprisonment.
In this article, we’ll break down everything you need to know about cheque bounce, its reasons, charges, legal implications, and how to avoid it.
What is a Cheque Bounce?
A cheque bounce occurs when a bank rejects processing a cheque due to insufficient funds or other reasons. It is also called cheque dishonor and can lead to financial losses, penalties, and even legal action.
Common Reasons for Cheque Bounce
Cheque bounce can happen for various reasons. Here are some of the most common ones:
Insufficient Funds
The most frequent cause of cheque bounce is a lack of sufficient balance in the issuer’s account. If the account doesn’t have enough funds to cover the cheque amount, the bank will reject it.
Signature Mismatch
If the signature on the cheque does not match the specimen signature registered with the bank, it will be declined.
Post-Dated Cheque
If a cheque is presented before the date mentioned on it, the bank will not honor it.
Overwriting or Alterations
Any changes on a cheque must be counter-signed. Unauthorized overwriting or scribbles can cause the cheque to be dishonored.
Expired Cheque
A cheque is only valid for three months from the date mentioned. Presenting an expired cheque results in rejection.
Account Closure
If the account from which the cheque was issued is closed, the cheque will automatically bounce.
Difference in Amount in Figures & Words
If the amount written in words differs from the amount in numbers, the cheque will be rejected.
Charges Imposed for Cheque Bounce in India
Both the issuer and the recipient of a bounced cheque may have to bear charges. The penalties vary depending on the bank and the type of account.
Charges Levied by Banks
| Bank | Outward Cheque | Inward Cheque | Technical Reasons |
| State Bank of India | Up to Rs 1 lakh: Rs 150 + GST | For SME customers: Rs. 500 for first 3 cheques and Rs. 1000 for 4th cheque onwards (+ GST) | Rs 150+ GST |
| Above Rs 1 lakh: Rs 250 + GST | For other customers: Rs 500 + GST per instance | ||
| HDFC Bank | 1st cheque: Rs.400 | Rs. 200 per instance | Rs 500 for NACH (National Automated Clearing House) returns |
| 2nd cheque: Rs 4503rd cheque onwards: Rs 500 | Rs. 50 for non-financial reasons | ||
| ICICI Bank | Rs. 200 for financial reasons | Rs 500 for financial reasons | Rs. 500 for NACH returns |
| Rs. 50 for non-financial reasons | |||
| Punjab National Bank | Up to Rs. 1 lakh: Rs 150 | Up to Rs. 1 lakh: Rs. 200 | Nil |
| Rs. 1 lakh – Rs. 10 lakhs: Rs. 250 | Rs. 1 lakh- 1 crore: Rs 500 | ||
| Rs. 10 lakh onwards: Rs. 500 | Rs. 1 crore onwards: Rs. 2000 for first cheque, Rs. 2500 for second cheque onwards | ||
| Kotak Mahindra Bank | First cheque of the month: Rs. 350 | Indian currency: Rs. 200 | Rs. 50 |
| 2nd cheque onwards: Rs 750 | Foreign currency: Rs. 1000 | ||
| Axis Bank | Rs. 500 per instance | Rs. 500 per instance | Rs. 500 per instance |
| Bank of Baroda | Up to Rs. 1 lakh: Rs. 250 | Up to Rs. 1 lakh: Rs. 125 | Rs. 250 |
| Rs. 1 lakh to Rs. 1 crore: Rs. 500 | Rs. 1 lac to less than Rs. 1 crore : Rs. 250 | ||
| Rs. 1 crore onwards: Rs. 750 | Above Rs. 1 crore: Rs. 500 |
Charges for the Payee
If a cheque bounces, the payee (the recipient) may also incur charges from their bank. This can range between ₹100 – ₹500.
Multiple Bounces Lead to Higher Penalties
Repeated cheque bounces from the same account can lead to increasing penalties and even account suspension.
Legal Consequences of Cheque Bounce
Cheque bounce is a serious issue under Section 138 of the Negotiable Instruments Act, 1881. Here’s what could happen if a cheque bounces:
Cheque Bounce Notice to the Issuer
The payee can send a legal notice to the cheque issuer within 30 days of the cheque bounce. The issuer has 15 days to settle the payment failing which, the payee can file a legal case.
Criminal Charges and Court Cases
If the issuer fails to clear the dues within the given period, the payee can file a complaint in court. This can result in imprisonment of up to 2 years or a fine of twice the cheque amount, or both.
Civil Action for Compensation
Apart from criminal charges, the payee can also file a civil case to recover the amount along with damages.
Additional Legal Action
In certain instances, an unpaid cheque may be subject to prosecution under Section 420 or Section 406 of the Indian Penal Code (IPC) for fraud or violation of trust.
Impact on Credit Score
Cheque bounce incidents are reported to credit bureaus, affecting the issuer’s CIBIL score and their ability to secure future loans.
A returned cheque can harm your credit score, making it more difficult to secure loans, credit cards, or overdraft options. Financial institutions might view regular cheque bounces as an indicator of financial instability, resulting in increased interest rates on future loans.
How to Avoid Cheque Bounce?
Prevention is always better than cure. Here’s how you can avoid cheque bounce issues:
Maintain Sufficient Balance
Always ensure your bank account has enough funds before issuing a cheque.
Use Digital Payments When Possible
To avoid the hassle of cheque bounce, opt for UPI, NEFT, RTGS, or IMPS for secure transactions.
Verify the Details Before Issuing
Double-check the cheque details, including signature, date, and amount, before handing it over.
Avoid Post-Dated Cheques
Ensure that the cheque date is current and valid before issuing.
How to Respond to Legal Notices?
Getting a cheque bounce notification can be daunting. Let’s examine the steps you can implement to prevent a cheque bounce fee or cheque bounce consequences directed at you.
Carefully read through the Notice
Identify the reason for the cheque bounce based on the notice provided to you by the payee. Carefully check all the information including date, signature, amount, account number, and more.
Respond to the notice in a timely Fashion
The typical time allotted for replying to a legal notice is 15 days. Attempt to compose a reply to the payee within that period.
Ask for some time to pay back the cheque Amount
Upon receiving a cheque bounce notice, you should typically be allowed 15-30 days to pay off the outstanding amount. If you do not repay within the specified timeframe, it will lead to grounds for a cheque bounce penalty.
Get a lawyer and build up a Defense
In a cheque bounce case, a defense may involve disclaiming responsibility once payment is confirmed via another method, discrepancies in signatures, demonstrating improper cheque presentation to the bank by the payee, and more.
Conclusion
Cheque bounce is more than just an inconvenience—it can lead to serious financial and legal repercussions. Whether you’re issuing or receiving a cheque, being vigilant can save you from unnecessary trouble. If you ever face a cheque bounce situation, act promptly and seek legal advice if necessary. The best way to avoid cheque bounce is to maintain sufficient balance, verify details, and consider digital payment alternatives.
FAQs on Cheque Bounce
1. What happens if I deposit a bounced cheque?
Your bank will notify you, and you may have to bear cheque bounce charges.
2. Can I re-present a bounced cheque?
Yes, if the issue was insufficient funds, you can try again after confirming balance availability.
3. How long does a cheque bounce case take in court?
It varies, but typically it can take 6 months to 2 years.
4. Can a cheque bounce affect my credit score?
Yes, multiple cheque bounces can impact your CIBIL score and financial credibility.
5. Is cheque bounce a criminal offense?
Yes, under Section 138 of the Negotiable Instruments Act, 1881, cheque bounce is a punishable offense.
6. How can I respond to a cheque bounce legal notice?
You should respond within 15 days, either by making the payment or consulting a lawyer.
7. Can I go to jail for cheque bounce in India?
Yes, if found guilty, the punishment can be up to 2 years of imprisonment or a hefty fine.
8. Are there any exceptions where cheque bounce is not punishable?
Yes, if the cheque was issued as a gift or donation and not for a legal debt or liability.
9. Can banks blacklist me for multiple cheque bounces?
Yes, banks may restrict your cheque issuance facility if frequent bounces occur.
10. What should I do if I receive a bounced cheque?
Send a legal notice within 30 days and take legal action if the payment isn’t cleared within 15 days.
By following the right financial practices, you can avoid the stress and legal trouble of cheque bounces!
