Your tenant hands over a cheque for three months’ rent, say ₹45,000, and four days later your bank sends an SMS: cheque returned, funds insufficient. Or you are the one who wrote a cheque and forgot that a loan EMI had already emptied the account. A cheque bounce is common, but what follows is not small. Banks charge a fee, trust takes a knock, and in many cases the law treats the dishonour as a criminal offence.
This guide explains what happens when a cheque is dishonoured, why banks return cheques, what Section 138 of the Negotiable Instruments Act, 1881 says about notices, deadlines and punishment, and how the Cheque Truncation System (CTS) and positive pay fit in. It is written for both sides of the cheque. It is general information, not legal advice for your particular case.
What a cheque bounce actually means
A cheque is an order from you (the drawer) to your bank (the drawee bank) to pay a named person (the payee). When the payee deposits it, the payee’s bank sends an image of the cheque through clearing. Your bank then either confirms payment or rejects it. A rejection is called dishonour, and the payee’s bank hands back the cheque with a return memo that states the reason.
Since 4 October 2025, clearing in CTS runs continuously through the day instead of in fixed batches. Under RBI’s instructions, the drawee bank must confirm or reject each cheque by the end of the confirmation session, or the cheque is treated as approved. Once settlement is done, the payee’s bank must release the money within one hour. In practice this means you usually learn about a bounced cheque on the same working day it was presented.
Common reasons cheques come back
| Reason on the return memo | What it usually means | What to do next |
|---|---|---|
| Funds insufficient | The drawer’s balance was lower than the cheque amount | Ask the drawer to pay; this is the main case Section 138 covers |
| Exceeds arrangement | The cheque was more than the overdraft or limit agreed with the bank | Treated like insufficient funds under Section 138 |
| Signature differs | The signature does not match bank records | Get a fresh cheque signed correctly |
| Payment stopped by drawer | The drawer told the bank not to pay | Find out why; take legal advice if money is owed |
| Account closed | The account no longer exists | Ask for payment by another method; take legal advice |
| Instrument out of date | Presented more than three months after the date on the cheque | Ask for a fresh cheque |
| Amount in words and figures differ, or overwriting | A technical error on the cheque | Ask for a fresh cheque; avoid corrections |
Bank charges when a cheque bounces
A bounced cheque can cost both sides money. The drawer’s bank usually charges a return fee for a cheque dishonoured for lack of funds, and the payee’s bank may also charge its customer for handling a returned cheque. The amounts are not fixed by RBI. Each bank lists them in its schedule of service charges, usually available on its website and at branches, so check your own bank’s schedule.
The bigger cost is often a second charge from the person you owe. If the cheque was for a loan EMI, the lender will normally add its own bounce charge and penal charges under the loan agreement. If it was rent or a business payment, the payee may insist on cash or a bank transfer from then on. As an illustration, a ₹20,000 EMI cheque that bounces can easily cost you several hundred rupees in combined bank and lender charges, plus a mark on your repayment record.
Charges are the least of it, though. If the cheque was given to repay a debt, the payee can start a criminal case under Section 138, which is where the real money and stress lie.
Section 138 of the Negotiable Instruments Act in plain words
Section 138 makes it an offence when a cheque, drawn on an account you maintain, is given to repay a debt or other liability and is returned unpaid because the money in the account is insufficient or the cheque exceeds the amount arranged with the bank. Three conditions must all be met before the offence is complete:
- Presented in time. The cheque must be presented within six months of its date or within its period of validity, whichever is earlier. RBI has directed banks not to pay cheques presented more than three months after the date on them (from 1 April 2012), so in practice the window is three months.
- Written notice within 30 days. The payee must send the drawer a written demand for the amount within 30 days of receiving information from the bank that the cheque was returned unpaid.
- No payment within 15 days. The drawer must fail to pay the amount within 15 days of receiving that notice.
Two things follow from this wording. First, the cheque must be for a debt or liability. A cheque given as a gift or a donation does not fit. Second, the drawer gets a real chance to settle. If you pay within 15 days of receiving the notice, the offence is not complete.
Cheque bounce timeline: from return memo to complaint
Deadlines decide most cheque bounce cases, so it helps to see them in one place. The dates below assume each step is taken on the last allowed day.
| Step | Time limit | Who acts |
|---|---|---|
| Present the cheque | Within three months of the cheque date (RBI validity rule) | Payee |
| Send written demand notice | Within 30 days of learning from the bank that the cheque bounced | Payee |
| Pay the amount | Within 15 days of receiving the notice | Drawer |
| File the complaint in court | Within one month from the day the 15-day period ends without payment | Payee |
The one-month limit for the complaint comes from Section 142 of the same Act. A court can accept a late complaint if the payee shows sufficient cause for the delay, but you should not plan on that. Missing the 30-day notice window is harder to fix, so payees should act quickly once the return memo arrives.
Penalties and interim compensation
If a court convicts the drawer under Section 138, the punishment can be imprisonment for up to two years, or a fine of up to twice the cheque amount, or both. Cases are usually tried in a summary manner before a magistrate.
The law also gives the payee some relief while the case is running. Under Section 143A, the court may order the drawer to pay interim compensation of up to 20% of the cheque amount. In a summary trial or summons case this can be ordered when the drawer pleads not guilty, and in other cases when charges are framed. The drawer must pay within 60 days of the order, and the court can allow up to 30 more days for sufficient cause. If the drawer is later acquitted, the payee has to return the money with interest at the RBI bank rate. The Supreme Court held in 2024 that this power is discretionary, not automatic.
If the drawer is convicted and appeals, Section 148 lets the appeal court order a deposit of at least 20% of the fine or compensation awarded by the trial court. This is on top of any interim compensation already paid.
As an illustration, take a ₹2 lakh cheque that bounced. The fine could go up to ₹4 lakh, interim compensation during trial could be up to ₹40,000, and these figures say nothing of legal fees and lost time on both sides.
If you issued a cheque that bounced
The simplest way out is to pay. Once you learn that your cheque bounced, contact the payee, pay by bank transfer or demand draft, and keep written proof such as a transfer reference and a message confirming the payment. If you receive a legal notice, read the date carefully. The 15-day window runs from the day you receive it, and payment inside that window means the offence under Section 138 is not complete.
If you believe nothing is owed, for example because the cheque was given as security for a deal that fell through, do not ignore the notice. Reply in writing, preferably through a lawyer, and set out your side. Ignoring court summons can lead to warrants and makes a weak defence weaker.
To avoid a repeat, keep a buffer in the account that cheques are drawn on, note every post-dated cheque you hand over, and check that EMIs, SIPs and other auto-debits will not leave too little for a cheque due the same week.
If you received a bounced cheque
- Keep the original cheque and the return memo safely. Your case rests on them.
- Note the date you received the bank’s information about the return. Your 30-day notice clock starts then.
- Send the demand notice in writing, by a mode that gives you proof of dispatch and delivery, and keep copies.
- Count 15 days from the drawer’s receipt of the notice. If no payment comes, the one-month window to file the complaint starts the next day.
- Consider re-presenting the cheque only after talking to a lawyer, since it affects how the deadlines are counted.
- Try settlement first. Many cases end with the drawer paying once a proper notice arrives.
CTS and positive pay: how they protect cheque users
The Cheque Truncation System replaced physical movement of cheques with images. Under RBI’s August 2025 circular, CTS moved from batch processing to continuous clearing with settlement on realisation, starting 4 October 2025. After a December 2025 change, the presentation session runs from 9 AM to 3 PM and the confirmation session from 9 AM to 7 PM. RBI had planned a second phase in which banks would have only three clear hours to confirm each cheque, but it postponed that phase until further notice. For you, the practical result is faster information: a bounce is known within the day, which also starts the 30-day notice clock sooner.
Positive pay protects the drawer against tampered or fake cheques. You send your bank key details of a cheque you have issued, such as the date, payee name and amount, through SMS, mobile app, internet banking or ATM. CTS compares the presented cheque with those details and flags any mismatch. RBI asked banks to offer the facility for all cheques of ₹50,000 and above from 1 January 2021. Using it is your choice, but banks may make it mandatory for cheques of ₹5 lakh and above, and only cheques that follow these instructions are accepted under the dispute resolution mechanism at CTS grids. If a large cheque you issued is rejected because of a mismatch, that is not a cheque bounce for lack of funds, but you will still need to sort it out with the payee.
Key takeaways
- A cheque bounce for insufficient funds can be a criminal offence under Section 138 if the cheque was for a debt or liability.
- The payee must send a written notice within 30 days of learning of the bounce, and the drawer then has 15 days from receipt to pay.
- The complaint must normally be filed within one month after the 15-day period ends.
- Punishment can be up to two years in jail, a fine of up to twice the cheque amount, or both, and courts can order interim compensation of up to 20%.
- Cheques are valid for three months from their date; present them early.
- Register big cheques under positive pay with your bank, and keep a buffer for every post-dated cheque you issue.
Most cheque bounce disputes end with payment once both sides understand the deadlines. If yours does not, a local lawyer can tell you how these rules apply to your facts.
