Key Aspects of Recent Cheque Bounce Case Law under NI Act 1881

Under Section 138 of the Negotiable Instruments Act, the punishment for cheque bounce due to insufficient funds can include imprisonment up to two years or a fine up to twice the cheque amount, or both.

A significant change in case law established that a case under Section 138 must be initiated at the location where the branch of the bank on which the cheque was drawn is situated, a ruling that applies retrospectively.

In cases involving signed blank cheques, the payee may fill in the details, but the onus remains on the accused to prove that the cheque was not issued for a legally enforceable debt or liability, even if it was filled by someone other than the drawer. The court may raise a mandatory presumption in favor of the complainant.

The Supreme Court has emphasized that in acquittal or conviction for cheque bounce cases, the court must prioritize evidence over mere presumption. Lack of financial capacity or documentation can weaken a claim.

When a company issues a cheque that bounces due to insufficient funds, a criminal suit can be initiated against the company and its directors under Section 148 of the Act.

Dishonor due to lack of a full signature on the cheque does not constitute an offense under Section 138. Also, part payment of the cheque amount must be indorsed on the cheque at the time of presentation for any subsequent complaint for the balance amount to be valid.

RBI has introduced new guidelines, including a common penalty range across banks for bounced cheques and flagging repeat offenders in their internal system. After three consecutive cheque bounces, an account may be temporarily frozen.