Introduction: Understanding Cheque Bounce in Nepal
In Nepal, cheques remain one of the most trusted modes of payment for business and personal transactions. However, when a cheque is dishonoured or “bounced,” it can lead to serious financial and legal consequences. The cheque bounce law in Nepal is primarily governed by the Negotiable Instruments Act, 2034 (1977) and the Banking Offence and Punishment Act, 2064 (2008).
These laws define what constitutes a cheque dishonour, outline the process for filing a complaint, and specify penalties for offenders. Knowing these provisions helps both individuals and businesses protect themselves against financial losses and legal risks.
What is a Cheque Bounce?
Definition and Meaning
A cheque bounce (or dishonour of cheque) occurs when a bank refuses to pay the amount mentioned on a cheque due to insufficient funds, mismatched signatures, or other technical reasons. In legal terms, it means that the cheque presented for payment has been returned unpaid by the bank.
Common Reasons for Cheque Dishonour
Insufficient balance in the drawer’s account.
Signature mismatch between the cheque and the bank records.
Overwriting or corrections on the cheque without authentication.
Post-dated or stale cheque (more than six months old).
Account closure before cheque presentation.
Impact on the Parties
When a cheque bounces, the payee faces loss of payment and trust, while the drawer risks legal action, fines, and a damaged financial reputation.
Legal Framework Governing Cheque Bounce in Nepal
1. Negotiable Instruments Act, 2034 (1977)
This Act provides the legal foundation for cheques, promissory notes, and bills of exchange. It defines cheque dishonour as an offence if a cheque issued for payment is returned unpaid due to insufficient funds or other reasons beyond technical error.
2. Banking Offence and Punishment Act, 2064 (2008)
This Act classifies cheque bounce as a banking offence and prescribes criminal penalties for issuing cheques that cannot be honoured. It allows the victim (payee) to seek legal redress and ensures accountability in financial transactions.
3. Civil vs. Criminal Approach
Cheque dishonour cases in Nepal can be handled under both civil and criminal procedures.
Civil remedy allows the payee to recover the cheque amount through a lawsuit.
Criminal remedy can lead to fines and imprisonment for the drawer if found guilty.
Elements Required to File a Cheque Bounce Case
1. Existence of a Valid Cheque
The cheque must be genuine and properly filled — including name of payee, date, amount (in words and figures), and valid signature.
2. Presentation and Dishonour
The cheque must be presented to the bank within its validity period (usually 6 months). The bank must issue a return memo or written notice of dishonour.
3. Legal Notice to Drawer
Before filing a case, the payee must send a written demand notice to the drawer, requesting payment within a specific time frame — generally 35 days from the date of cheque issuance or dishonour.
4. Failure to Pay After Notice
If the drawer fails to pay within the given period after receiving the notice, the payee gains the right to initiate legal proceedings.
Civil Remedies for Cheque Bounce in Nepal
Filing a Civil Case
If a cheque is dishonoured, the payee can file a civil lawsuit in the District Court where the bank or the drawer resides. The complaint should include:
Copy of the bounced cheque
Bank return memo
Demand notice copy
Proof of service (delivery receipt, postal tracking, or email acknowledgement)
Claiming Damages
Under the Negotiable Instruments Act, the complainant can claim:
The cheque amount
Interest from the date of dishonour
Legal costs and compensation for losses incurred
Limitation Period
A civil case must generally be filed within six months from the date of cheque dishonour. Delays may cause the claim to lapse.
Interim Measures
Courts may grant interim orders such as freezing assets, injunctions, or garnishee orders to prevent the drawer from transferring funds.
Criminal Prosecution for Bounced Cheques
Criminal Offence Under Banking Offence and Punishment Act
Issuing a cheque without sufficient funds or with fraudulent intent is considered a criminal offence. Section 4 of the Act defines it as a punishable banking offence.
Penalties for Cheque Bounce
According to Nepalese law:
Fine: Equivalent to the amount of the cheque or double the amount in serious cases.
Imprisonment: Up to 3 months to 3 years, depending on intent and repetition of offence.
Both: Courts can impose both fine and imprisonment in severe offences.
Filing a Criminal Complaint
A criminal complaint can be filed at the District Government Attorney’s Office or local District Police Office with supporting documents.
The case proceeds through investigation, prosecution, and judgment.
Effects of Criminal Conviction
A criminal conviction for cheque bounce damages the offender’s credit profile, restricts banking privileges, and can lead to disqualification from holding directorship in companies.
Steps to Take After a Cheque Bounces
1. Obtain the Bank Return Memo
Collect the written proof of cheque dishonour from the bank. This serves as key evidence.
2. Send a Legal Demand Notice
Within the stipulated time (usually 35 days), send a formal notice to the drawer demanding payment. The notice should include cheque details, date, and reason for dishonour.
3. Wait for Response or Payment
If the drawer fails to respond or pay within the given period, proceed with a case filing.
4. File a Complaint
Decide whether to pursue civil recovery or criminal prosecution — depending on the nature of the dishonour and your objective (payment recovery vs. punishment).
Defences Commonly Used by Drawers
1. Lack of Intent
The drawer may claim the cheque was issued as a guarantee or security, not as payment.
2. Technical or Clerical Errors
If the dishonour occurred due to bank error, illegible signature, or accidental mismatch, the case may not qualify as an offence.
3. Payment Already Made
Proof of prior settlement can serve as a valid defence to dismiss the case.
Evidence and Documentation Required
Essential Documents
Original cheque and photocopy
Bank return memo or dishonour slip
Legal demand notice and proof of delivery
Bank statements of both parties
Supporting Evidence
Contracts or invoices showing the underlying transaction
Digital communication (emails, messages) proving intent and transaction
Witness statements confirming the transaction
Preserving Digital Evidence
Always maintain screenshots, bank SMS alerts, and scanned copies for court presentation.
Alternative Dispute Resolution (ADR)
Negotiation and Settlement
Before filing a case, parties can settle the matter through mutual negotiation. Many cheque disputes are resolved once payment and apology are made.
Mediation
Courts often encourage mediation. A mediated settlement saves time, costs, and preserves business relationships.
Settlement Agreement
Any settlement should be documented in writing, signed by both parties, and enforceable through court order if breached.
Bank Liability in Cheque Dishonour
When the Bank Can Be Held Liable
In rare cases, if a bank dishonours a cheque wrongfully despite sufficient funds or due to negligence, the affected party may seek compensation from the bank.
Filing Complaints
Complaints can be made to:
Concerned Bank Branch or Head Office
Nepal Rastra Bank (NRB) – Banking Supervision Department
Consumer Protection Council under the Ministry of Industry, Commerce & Supplies
Recent Legal Trends and Developments
Digital Evidence and Online Banking
With the rise of e-cheques and digital banking, courts in Nepal now accept electronic records such as scanned cheques, email trails, and mobile payment logs as admissible evidence.
Recent Court Rulings
Recent cases have shown stricter enforcement of cheque bounce penalties, reinforcing financial accountability in Nepal’s banking system. Courts have emphasized timely notice issuance and documentary proof as decisive factors.
Practical Tips to Avoid Cheque Bounce Cases
For Cheque Issuers (Drawers)
Maintain sufficient account balance.
Avoid post-dating or overwriting on cheques.
Monitor account statements regularly.
Communicate promptly if a cheque might not clear.
For Cheque Receivers (Payees)
Always verify drawer details and account validity.
Deposit cheques promptly.
Keep all transaction records.
Use digital payment alternatives like bank transfers for large transactions.
Frequently Asked Questions (FAQs)
Can I file both civil and criminal cases together?
Yes. You can simultaneously pursue civil recovery and criminal prosecution, provided both are filed within the legal timeframe.
What is the time limit for filing a cheque bounce case?
Generally, a complaint must be filed within 6 months of cheque dishonour or notice period expiry.
What happens if the drawer refuses to accept the notice?
Refusal to accept a legal notice is treated as valid service under Nepalese law.
Can a company be prosecuted for cheque bounce?
Yes. Company representatives and authorized signatories can be held personally liable.
Is imprisonment mandatory for cheque bounce offences?
Not always. The court can impose fines, imprisonment, or both depending on the severity and intent.
Conclusion
Cheque bounce cases are becoming increasingly common in Nepal due to rising commercial transactions and credit-based payments. Understanding the cheque bounce laws under the Negotiable Instruments Act and the Banking Offence & Punishment Act is crucial for individuals, entrepreneurs, and financial professionals alike.
Whether you’re a drawer or a payee, following proper cheque procedures, maintaining documentation, and responding promptly to notices can help you stay compliant and avoid legal trouble.