Cheque Bouncing – Consequences and Remedy


The Negotiable Instruments Act (NI Act) 1881, is a crucial legislation that regulates commercial transactions concerning negotiable instruments in India like promissory notes, bills of exchange, and cheques. Its primary objective is to establish a legal framework that facilitates the seamless execution of financial transactions by delineating the rights and responsibilities of the parties involved. This article aims to delve into the consequences of non-compliance with the provisions of the NI Act and examine the potential remedies accessible to the affected parties.


I. Criminal Liability:

In an event where a cheque is dishonored, the NI Act holds the issuer accountable for criminal liability. If the issuer fails to clear the payment within the specified time after receiving a notice, the payee has the right to file a complaint with the appropriate court. According to the Act, the issuer of a bounced cheque can face criminal penalties, which may include;

  • Imprisonment for up to 2 years,
  • A monetary fine,
  • Or both.

Furthermore, the court has the authority to order the issuer to compensate the recipient for the amount stated in the bounced cheque, along with any additional costs incurred.

II. Civil Liability:

In addition to criminal liability, the issuer of a bounced cheque also faces civil consequences. The payee is entitled to initiate a civil lawsuit under Order 37 of the Code of Civil Procedure, 1908, to recover the due amount, including any accumulated interest and legal expenses. The civil court has the power to direct the issuer to compensate the payee by ordering the payment of the outstanding amount.


Legal Notice

In cases where a cheque is dishonored due to insufficient funds, the payee has the option to issue a legal notice to the issuer, demanding payment within a specified period,

  • The time given to the issuer to act on the notice is 15 days.
  • The notice should be sent through registered post or by utilizing the services of a notary public.


If the issuer fails to make the payment within the given time frame, which is 15 days from the receipt of the notice, the payee has the right to file a complaint against the issuer in the appropriate court for the offense of dishonor of the cheque. It is essential for the notice to clearly outline the details of the dishonored cheque and the consequences that the issuer will face if they do not fulfill the payment within the stipulated period.


In cases of bounced cheques, the Negotiable Instruments Act, 1881, sets specific time limits for various actions to be taken. These time limits are of utmost importance as they ensure the timely commencement of legal proceedings and protect the rights of both the issuer and the recipient involved in the dishonored cheque.

Issuing a Legal Notice

  • As per the Act, the recipient should dispatch the legal notice within 30 days from the receipt of the cheque return memo issued by the bank, which informs them about the dishonor of the cheque.
  • It is crucial to adhere to this timeline to maintain the validity of the legal claim and pursue further legal actions, if necessary.

Initiating a Legal Proceeding

  • If the issuer does not make the payment within 15 days from the receipt of the legal notice, the recipient has the right to commence legal proceedings by filing a formal complaint with the appropriate court.
  • It is important to note that the complaint must be filed within 30 days from the expiration of the notice period, ensuring timely action in response to the dishonored cheque.


When filing a complaint, it is essential to consider the appropriate jurisdiction. The complaint should be submitted in the jurisdiction where the bank on which the cheque was drawn is located or where the recipient’s bank is situated. This ensures that the legal proceedings are conducted in the correct jurisdiction, promoting fairness and adherence to legal processes.


The case involving M/s. Dalmia Cement (Bharat) Limited and M/s. Galaxy Traders & Agencies Company Limited & Ors is widely recognized as a landmark judgment, shedding light on the rationale behind the establishment of Section 138 of the Negotiable Instruments Act of 1881. This particular case centers around the dishonor of a cheque, which prompted the issuance of a notice to inform the defendant. However, delays in the plaintiff’s receipt of the notice resulted in the expiration of the statutory period for filing a complaint. This pattern repeated itself multiple times, with the defendant consistently failing to provide the necessary funds.

The judgment in the case of M/s. Dalmia Cement (Bharat) Limited v. M/s. Galaxy Traders & Agencies Company Limited & Ors likely offered valuable insights into the application of Section 138 and emphasized the importance of prompt action when dealing with dishonored cheques and the significance of complying with statutory requirements and adhering to prescribed timelines outlined in Section 138 to pursue appropriate legal remedies in instances involving dishonored cheques.


The Negotiable Instruments Act in India plays a pivotal role in regulating commercial transactions involving negotiable instruments. It serves as a deterrent against fraudulent practices and ensures the protection of the rights of the parties involved. Understanding the consequences of violating the provisions of the NI Act and its available remedies can help individuals and businesses navigate financial transactions while safeguarding their interests. All parties should comply with the provisions of the NI Act to maintain the integrity of commercial transactions and promote a healthy business environment in India.


Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement