Quick answer: Section 25 of the Payment and Settlement Systems Act, 2007 makes an ECS or NACH mandate bounce for insufficient funds a criminal offence. The lender must send a demand within 30 days of the return memo. If unpaid in 15 days, the lender can prosecute. Punishment extends to two years’ jail, twice the amount as fine, or both.
Most retail and MSME loans now run on auto-debit mandates instead of post-dated cheques. When an EMI debit fails, many lenders still reach for Section 138 of the NI Act. That is the wrong tool. The correct remedy is a Section 25 PSS Act complaint, and it follows its own conditions. Here is how banks and NBFCs can use it.
What Section 25 PSS Act Covers
Section 25(1) deems a person to have committed an offence when an electronic funds transfer they initiated fails. The trigger is an insufficient balance or an amount above the arrangement with the bank. ECS debits, NACH and e-NACH mandates are the most common examples.
However, the offence arises only when the proviso’s four conditions exist:
- the transfer was meant to discharge a debt or other liability;
- the initiator set it up under the payment system’s procedural guidelines;
- the beneficiary sent a written demand within 30 days of learning of the dishonour from its bank; and
- the initiator failed to pay within 15 days of receiving that notice.
The section also helps the complainant. Courts presume that the transfer was for a debt, unless the accused proves otherwise. A bank memo showing dishonour also raises a presumption of the bounce itself.
How Section 25 Links to the NI Act and BNSS
Section 25(5) applies Chapter XVII of the NI Act to electronic transfers “to the extent the circumstances admit.” In practice, the cheque bounce framework fills the gaps. You can read our guide to cheque bounce cases under Section 138 NI Act for that framework.
Accordingly, the lender files a private complaint before the Judicial Magistrate. The procedure now runs under the BNSS, which replaced the CrPC from 1 July 2024. An accused who seeks quashing now moves the High Court under Section 528 BNSS, the successor to Section 482 CrPC.
Key Case Law
Sunil Kumar Verma v. Yes Bank Ltd. (Gauhati High Court, 17 October 2025). A borrower sought quashing of a Section 25 complaint in Kolkata, alleging no notice and no jurisdiction. Justice Mridul Kumar Kalita dismissed the petition. The court held that service of notice was a factual question for trial. It also held that a pending DRT recovery case does not bar criminal prosecution. Further, the court relied on Section 25(5) and Section 142(2) NI Act. It found Kolkata prima facie competent because the bank maintained its credit account for the ECS facility there.
Prakash Chimanlal Sheth v. Jagruti Keyur Rajpopat (Supreme Court, 25 July 2025). In this cheque case, the court reaffirmed that Section 142(2)(a) NI Act places jurisdiction where the payee’s bank branch sits. Through Section 25(5), lenders argue for the same rule in e-mandate cases.
Step-by-Step Checklist for Lenders
- Collect the return memo. Download the return file showing “funds insufficient.”
- Diarise day 30. Count from the date your bank informed you of the dishonour, not the EMI due date.
- Send the demand notice. Use speed post and email, state the exact amount, and keep tracking proof.
- Wait 15 days. Count from the borrower’s receipt of the notice.
- File the complaint. Approach the Magistrate where your collection account branch sits, within one month of the 15-day period ending.
- Attach the paper trail. Include the loan agreement, signed mandate, return memo, notice, postal proof and statement of account.
- Run civil recovery in parallel. DRT or arbitration proceedings do not stop the complaint.
Frequently Asked Questions
Is a NACH bounce a criminal offence in India?
Yes. A NACH or ECS debit that fails for insufficient funds can be an offence under Section 25 PSS Act. However, the lender must first satisfy the demand notice and 15-day payment conditions.
What is the punishment under Section 25 PSS Act?
The court can impose jail up to two years, a fine up to twice the transfer amount, or both.
Can a lender file Section 138 NI Act for an ECS bounce?
No. Section 138 covers cheques only, so an ECS or NACH bounce falls under Section 25 PSS Act.
What is the time limit for a Section 25 notice?
The lender must send a written demand within 30 days of receiving the bank’s dishonour information. The borrower then has 15 days to pay.
Which court hears an ECS bounce complaint?
The Gauhati High Court applied Section 142(2) NI Act through Section 25(5). Thus, the Magistrate where the lender keeps its collection account can usually hear it.
Does a DRT case bar a Section 25 complaint?
No. The Gauhati High Court held in 2025 that civil recovery and criminal liability are separate.
Lex Pleaders advises banks, NBFCs, businesses and individuals on ECS and NACH bounce prosecutions, cheque dishonour and loan recovery. As a law firm in Delhi NCR, we act from trial courts to the Supreme Court. Write to us at lexpleadersindia@gmail.com to discuss your matter.
Disclaimer: This article offers general information only and does not constitute legal advice.