Beware! Cheque bounce can lead to hefty penalty and imprisonment

Keep sufficient funds in account, fill cheque details accurately and legibly, and ensure your signature hasn't changed

Cheque bounce is back in the news with three cases making the headlines. A court in Maharashtra’s Thane district sentenced a businessman to rigorous imprisonment for three months and directed him to pay double the bounced amount. A metropolitan court punished a man in Gujarat with a one-year jail sentence. 

The Sikkim High Court recently ruled that offences under Section 138 of the Negotiable Instruments Act can be compounded at any stage.

 

What is a cheque bounce?

Cheque bounce or “dishonour of cheque” occurs when a drawee is unable to withdraw money using a cheque due to certain limitations. It is covered by the Negotiable Instruments Act (NI Act), 1881, which aims to deter the issuance of cheques without sufficient funds in the bank account, and provides legal remedy to the aggrieved party. 

 

Insufficient funds

Section 138 of the NI Act mentions two reasons for cheque bounce. Tushar Agarwal, advocate, Supreme Court of India, says, “First, there is insufficient money in the account. Second, the cheque amount exceeds the arrangement the account holder has with the bank.” The second reason refers to the cheque amount being higher than the account’s withdrawal limit.