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Many people generally consider check bounces to be minor administrative issues. However, the reality is far more serious. The case of actor Rajpal Yadav has made this clear.

Recently, actor Rajpal Yadav was jailed for a check-bouncing case. In fact, Rajpal Yadav's check bounce case involves outstanding dues of approximately ₹9 crore. This case dates back to 2010, when the actor took a loan of approximately ₹5 crore for his film. However, due to the film's failure, the loan was unable to be repaid. Subsequently, due to interest, penalties, and delays, the loan amount increased to approximately ₹9 crore. Furthermore, the checks issued to repay the loan also bounced, leading Rajpal Yadav to surrender them.

Many people generally consider check bounces to be minor administrative issues. However, the reality is far more serious. In fact, the case of actor Rajpal Yadav has made it clear that treating a check bounce as a minor administrative mistake can prove costly. Indian law considers check bouncing a serious economic offense. Under Section 138 of the Negotiable Instruments Act, 1881, if a check bounces due to insufficient balance and the prescribed procedures are followed, it can become a criminal offense. So, let us explain the law regarding check bouncing and the penalties for check bouncing.

What is Section 138?

According to Section 138, if a bank dishonors a check for insufficient funds or other valid reasons, criminal action can be taken against the issuer. If convicted, the punishment can be up to two years in prison, a fine of twice the amount of the check, or both. This provision applies when a legal notice is sent after the check bounces and payment is not made within 15 days of receipt.

What is the legal process?

When a check bounces, the bank issues a return memo. This is followed by a legal notice to the payee within 30 days. Upon receiving the notice, the issuer is given 15 days. If payment is not made within this period, a complaint can be filed in a magistrate's court within the next 30 days. According to the law, such cases must be resolved within six months. Furthermore, the bank may impose a penalty even before the court's decision on a check bounce. Typically, a dishonor charge of ₹100 to ₹750 may be levied if the check or NACH mandate fails. If the check is related to EMI, rent, or credit card payments, a late fee, a bounce fee, and interest may also be added.

What causes a check to bounce?

Checks can typically bounce due to insufficient balance in the account, the expiry of the 3-month validity period, mismatched signatures, overwriting, incorrect details, or the check being damaged. The most common and punishable reason is insufficient funds in the account. The legal notice must state the same amount as the check. Even a slight difference in the amount can invalidate the notice, and the check must be issued to pay a legal liability or debt.