What happens when a cheque bounces

When a cheque bounces, the bank issues a "cheque return memo" stating the reason for dishonour. Key consequences include:

• Legal Action: Under Section 138 of the Negotiable Instruments Act, 1881, issuing a cheque without sufficient funds is a criminal offence. Penalties include imprisonment for up to two years, a fine of up to twice the cheque amount, or both.
• Financial Impact: Banks levy penalty charges on both the drawer and the payee.
• Credit Score: Repeated instances can severely damage your credit history and loan eligibility.
• Banking Restrictions: Banks may restrict cheque book facilities or close accounts for repeat offenders.