What is a Dishonoured Cheque (Bounced Cheque)?

A Dishonoured Cheque is a cheque that the bank refuses to pay or clear. Instead of transferring the money to the payee, the bank returns the cheque with a 'Return Memo' stating the reason for refusal.

Why would a bank reject a cheque? Here are the primary reasons:

1. Insufficient Funds: The most common reason. The person who wrote the cheque does not have enough money in their bank account to cover the amount.
2. Signature Mismatch: The signature on the cheque does not match the signature registered with the bank.
3. Overwriting or Alteration: Any scribbling, correction, or overwriting on the cheque without a counter-signature.
4. Stale Cheque: In India, a cheque is only valid for 3 months from the date written on it. If presented after that, it bounces.
5. Post-Dated Cheque: Presenting the cheque to the bank before the date written on it.

In India, under Section 138 of the Negotiable Instruments Act, issuing a cheque that bounces due to 'Insufficient Funds' is a criminal offence. If the issuer does not pay the amount within a specific notice period, they can face a heavy penalty or even imprisonment up to 2 years.