Cheque Bounce Under Section 138 NI Act: A Step-by-Step Recovery Guide

A clear timeline for cheque bounce action under Section 138 NI Act, covering the 30-day legal notice, 15-day grace and criminal complaint process.

When a Cheque Bounce Becomes a Crime

A bounced cheque becomes a criminal offence under Section 138 of the Negotiable Instruments Act, 1881, when it is dishonoured for insufficient funds or because it exceeds the arrangement with the bank. The cheque must have been issued for the discharge of a legally enforceable debt or liability, which excludes gifts or donations. Punishment can extend to two years of imprisonment, a fine of up to twice the cheque amount, or both. This criminal angle is what makes Section 138 the most powerful recovery tool for small businesses dealing with delayed payments.

Step One: The Bank Memo

The recovery clock starts when your bank issues a cheque return memo with reasons like funds insufficient, exceeds arrangement, or payment stopped by drawer. This memo is your primary evidence, so keep the original and ask for a duplicate if you misplace it. The cheque must be presented within its validity period, currently three months from the date written on the instrument. Re-presenting a bounced cheque is allowed and sometimes useful, but the cause of action under 138 starts only after the final dishonour.

Step Two: The 30-Day Legal Notice

Within 30 days of receiving the bank memo, you must send a written legal demand notice to the drawer through your lawyer, demanding payment of the cheque amount. Always send by registered post with acknowledgement due and keep proof of dispatch, because the law presumes service when posted to the correct address. The notice must clearly identify the cheque, the date, the amount and the underlying transaction. Missing the 30-day window destroys your cause of action and the only remedy left is a civil suit for recovery, which is slower and weaker.

Step Three: 15-Day Grace and Criminal Complaint

The drawer gets 15 days from the date of receiving the notice to make full payment. If they pay within this window the matter closes and you have no further criminal remedy. If they do not, you can file a criminal complaint before the Judicial Magistrate having jurisdiction within the next 30 days, that is between day 16 and day 45 from the notice receipt. Jurisdiction lies where your bank branch that processed the cheque is located, per the 2015 amendment, which is a huge convenience for businesses.

Preventing Cheque Bounce in the First Place

Most cheque bounces in small businesses happen because terms were never set in writing and reminders were inconsistent. Insisting on a written purchase order, raising a tax invoice the same day, and sending automated payment reminders cuts bounce risk dramatically. BillBabu lets you record cheque details against an invoice, mark dishonoured status, and pull a report of all dishonoured cheques pending legal action, so nothing slips past your 30-day window for issuing notice.

---

Built for Indian small businesses. BillBabu is GST-compliant billing software that helps you create invoices, manage estimates, track payments and stay audit-ready — from your phone. Learn more about BillBabu or download the app.