Cheques › When a cheque bounces

When a cheque bounces: what to do, step by step

A bounced cheque means the payment never happened. In your books the bill is unpaid again. In law, a cheque that bounces for lack of funds can be a criminal offence under section 138 of the Negotiable Instruments Act, 1881, but only if you follow strict time limits. Most bounces are settled with a phone call; the time limits matter when they are not.

First, in your books

Mark the cheque Bounced in the register. The payment is taken out, the bills it paid become due again, and the customer’s balance goes back up. The bank usually charges you a return charge (plus 18% GST); add it as an expense under bank charges. You may ask the customer to pay that charge too, if your terms say so.

The legal timeline (section 138)

1. The cheque must have been presented within its validity, three months from the date on it.
2. Keep the bank’s return memo; it states the reason, such as "funds insufficient".
3. Send the drawer a written demand for the amount within 30 days of getting the return memo. Send it by a method that gives proof, such as registered post or speed post, and keep copies.
4. The drawer has 15 days from receiving the demand to pay.
5. If they do not pay, a complaint can be filed before the magistrate within one month after those 15 days end (section 142). Since 2015 the case is filed where the payee’s bank branch is.

The offence can be punished with up to two years in prison, a fine up to twice the cheque amount, or both. The court can order the drawer to pay interim compensation of up to 20% of the amount during the case (section 143A), and the parties can settle at any stage (section 147). A lawyer should draft the notice and the complaint.

An example

A customer’s cheque of ₹12,600 dated 6 November 2026 is returned on 7 November for insufficient funds. The demand must be sent within 30 days, by 7 December at the latest. If the customer receives it on 10 December and does not pay by 25 December, the complaint must be filed by 25 January 2027.

Bounces of your own cheques

If a cheque you gave bounces, the supplier’s bill is unpaid again and they can use the same law against you. Mark it bounced, pay by bank transfer at once, and keep enough money in the account for every cheque in "Your cheques not yet cleared".

Preventing bounces

• Take cheques only from customers you know, and for large amounts ask for a bank transfer or UPI.
• Deposit cheques quickly; the longer you wait, the more likely the money has gone.
• Use "Cheques due in the next 7 days" to remind customers before a post-dated cheque falls due.