What happens after a cheque bounce notice is sent.

What Happens After Sending Cheque Bounce Notice?

Once a cheque bounce notice is sent, the process under Section 138 of the NI Act enters its most crucial phase, i.e., compliance or prosecution. The law offers the drawer a fair opportunity to rectify the default before criminal liability arises.

15-day payment window

Upon receipt of the notice, the drawer is granted 15 days to make payment of the cheque amount. If the payment is made within this period, the offence is deemed not to have been committed, and no legal proceedings can be initiated. This provision reflects the remedial spirit of the law as it prioritizes recovery over punishment.

Cause of action arises after default

If the drawer fails to make payment within the prescribed 15 days, the cause of action arises on the 16th day. The payee then acquires the right to file a complaint before the Judicial Magistrate of the First Class within one month from the date of accrual of cause of action.

This timeline has been reinforced in multiple cases, including K. Bhaskaran v. Sankaran Vaidhyan Balan, (1999) 7 SCC 510, where the Supreme Court clarified that the complaint must strictly follow the statutory schedule for it to be maintainable.

Jurisdiction of the Court

The complaint can be filed before the Magistrate within whose jurisdiction either:

the cheque was presented for collection, or

the payee maintains their bank account.

This position was settled in Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129, and later streamlined by the Negotiable Instruments (Amendment) Act 2015 (‘2015 Amendment Act’), which restored jurisdiction to the place of the payee’s bank.

Issuance of summons and trial process

Once the Magistrate takes cognizance, summons is issued to the accused. The procedure under Section 143 of the NI Act mandates that cheque bounce cases be tried summarily, with an aim for expeditious disposal.

In Indian Bank Association v. Union of India, (2014) 5 SCC 590, the Supreme Court issued detailed guidelines to ensure speedy trial of cheque dishonour cases, including day-to-day proceedings, use of affidavits for evidence, and encouragement of compounding at every stage.

Settlement and compounding

The NI Act allows the offence under Section 138 of the NI Act to be compoundable, meaning both parties can settle the matter at any stage of proceedings. In Meters and Instruments Pvt. Ltd. v. Kanchan Mehta, (2018) 1 SCC 560 (‘Meters and Instruments Pvt. Ltd. case’), the Supreme Court reaffirmed that the purpose of the law is not punitive but compensatory, encouraging compromise to avoid unnecessary incarceration.

Consequences of non-compliance

If no payment is made and no settlement is reached, the case proceeds to trial. Upon conviction, the drawer may face:

Imprisonment up to two years, or

Fine up to twice the amount of the cheque, or

Both.

Additionally, the Court may order compensation to the complainant under Section 395 of the Nagarik Suraksha Sanhita, 2023 (Section 357 of the Criminal Procedure Code, 1973).

Another critical ingredient is the demand for payment. The notice must unequivocally call upon the drawer to make good payment of the dishonoured cheque within fifteen days of receipt. Vague or conditional demands, for example, offering settlement options or partial payments, may dilute the legal force of the notice.

In essence, sending the notice initiates a structured legal sequence, i.e., a fair chance to correct the default, followed by proportionate consequences if the default persists. The framework ensures that while the payee’s rights are protected, the drawer is also afforded by every procedural safeguard before facing prosecution.