What to Do When a Cheque You Issued Bounces: Legal Defences & Remedies for Drawer
- Kiratraj Sadana
- Oct 15
- 4 min read
Introduction: When a Mistake Turns into a Criminal Case
You issue a cheque in good faith — maybe for a vendor payment, business advance, or loan settlement. Then, unexpectedly, your bank returns it “insufficient funds” or “stop payment”.
A few weeks later, you receive a legal notice threatening criminal action under Section 138 of the Negotiable Instruments Act, 1881.
What now?Are you automatically guilty?Can you still make the payment and avoid court?
This article breaks down your rights, legal defences, and remedies if you find yourself on the receiving end of a cheque bounce allegation.
First Principles: What the Law Actually Says
Section 138 of the Negotiable Instruments Act, 1881 criminalizes cheque dishonour only when:
The cheque was issued for a legally enforceable debt or liability,
It was presented within 3 months (or validity period),
It was returned unpaid for insufficient funds or exceeding arrangement,
The payee sent a written demand notice within 30 days, and
The drawer failed to make payment within 15 days after receiving the notice.
If all five conditions are met, the payee can file a complaint.But if even one element is missing — the prosecution can collapse.
Step One: Don’t Panic — A Notice Is Not a Conviction
Receiving a demand notice does not mean you are guilty. It is an opportunity to rectify the situation before criminal proceedings start.
You have 15 days from receipt of the notice to:
✅ Make the payment in full, or✅ Communicate your defence through a formal reply (ideally through a lawyer).
If you clear the dues within 15 days, no offence is deemed to have been committed — the matter legally ends there.
Step Two: Identify Why the Cheque Bounced
Different causes of dishonour have different legal outcomes:
If the cheque was given as security, or if the liability was disputed, you may have a valid defence (explained below).
Step Three: Know Your Legal Defences
Courts presume under Section 139 that every cheque was issued towards a debt.However, you can rebut this presumption with evidence or circumstances showing otherwise.
Here are the most effective defences available:
1. No Legally Enforceable Debt or Liability
You can argue that the cheque was not issued to repay a legally enforceable debt.Example: You gave a post-dated cheque as security for a contract that never materialized.
The Supreme Court in Indus Airways Pvt. Ltd. v. Magnum Aviation Pvt. Ltd. held that cheques issued as advance payment for a contract that was later cancelled are not for an “existing liability” and thus Section 138 does not apply.
2. Cheque Issued as Security
Security cheques are often issued to safeguard future payments or obligations. If no payment became due on the date of presentation, there is no offence.
In Sampelly Satyanarayana Rao v. IREDA it was held that cheque issued as security can still attract Section 138 only if it was meant to discharge an existing liability.
3. Lack of Proper Notice or Wrong Timelines
If the complainant did not issue a valid notice within 30 days or filed the complaint beyond limitation, the case can be dismissed.
Courts treat these timelines strictly, they are the backbone of procedural compliance.
4. Payment Already Made
If you can show proof of payment before or within 15 days of the demand notice, prosecution cannot continue.
5. Alteration or Forgery
If the cheque was altered, filled without consent, or stolen, a criminal complaint under Section 420 IPC (for fraud) may even be appropriate against the complainant.
6. Company Not Properly Impleaded
If you are a director and the complaint fails to specifically allege your role in the company, you can seek quashing under Section 482 CrPC.
Step Four: Options After a Case Is Filed
If the complaint is filed despite your defences, you still have several remedies:
A. File for Compounding (Settlement)
Cheque bounce is a compoundable offence — meaning both parties can settle anytime.Courts even encourage it. Once the complainant accepts payment, the case can be closed immediately.
B. Seek Quashing of Complaint
If the complaint is defective (e.g., notice invalid, no jurisdiction, no existing debt), your lawyer can approach the High Court under Section 482 CrPC to quash proceedings.
C. Contest the Case on Merits
If you believe the claim is false or exaggerated, you can contest it.Key evidence: bank statements, contract terms, invoices, and communication showing no debt existed.
Practical Tips from Apar Law
Maintain Written Records: Always document why a cheque was issued — especially in business transactions.
Avoid Issuing Blank Cheques: Courts treat filled cheques signed by the drawer as valid even if the amount was later inserted.
Monitor Account Balances: Ensure sufficient funds before issuing post-dated cheques.
Use Electronic Transfers: To reduce risk and evidentiary complexity.
Act Quickly After Notice: Delays can close your defence window permanently.
Settlement, Mediation, and Reputation Management
Beyond the courtroom, cheque bounce cases often involve commercial relationships you may wish to preserve.Apar Law regularly assists clients in confidential settlements, court-compounding applications, and negotiated closures — minimizing reputational risk while ensuring legal compliance.
The Supreme Court in Meters & Instruments Pvt. Ltd. v. Kanchan Mehta encouraged courts to adopt a pragmatic, business-friendly approach to such disputes.That means you can resolve the matter amicably without long trials — provided you act fast and strategically.
Comments