Section 138 of the Negotiable Instruments Act states that where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offense and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for 19 [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both.

The bank can not issue the checkbook to the offender if he continuously issues a cheque that gets bounced off. For the offense of the cheque bounce the aggrieved party can file a criminal as well as a civil suit.

In the cheque bounce notice, there are certain things that have to be mentioned as mandatory and they are the name and the address of the drawee and payee, the information of the cheque, the date of return of cheque, the reason why the cheque was bounced, and the reference of section 138 of the Negotiable Instrument Act. The punishment can be imprisonment for 2 years or to pay them twice the amount of the cheque or both.

In case a cheque is bounced, both the defaulter and the payee are charged by their respective banks. If the bounced cheque is against the repayment of a loan, you would have to additionally incur late payment charges along with the penalty fee charged by the bank. Some customers make use of their overdraft account wherein the banks would cover cheques that would otherwise bounce. The customer will pay interest on the outstanding balance of an overdraft loan.

The reason for the cheque bounce can be the insufficient amount of the amount in the account, signature, wrong or unclear account number, no existent of the account, or the nonexistence of the account holder. The bounced cheque can be deposited again.

For the bounce of cheque, a case under section 420 of the IPC can also be filed which states that the whoever cheats and thereby dishonestly induces the person de­ceived to deliver any property to any person, or to make, alter or destroy the whole or any part of valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.The objective of introducing Section 138 was to encourage the culture of using cheques and enhance the credibility of the instrument. It was also to inculcate faith in the efficacy of banking operations by making the issuer of the cheque liable for penalties in case it is dishonoured. Due care has also been taken to prevent harassment of honest drawers of cheque.

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