Cheque Bounce
A cheque bounce occurs when a cheque that is presented for payment is returned unpaid by the bank due to insufficient funds or other reasons such as a mismatch of signatures, an overwriting error, or a stale cheque (i.e., a cheque presented after its validity period has expired). In India, cheque bounce cases are taken seriously and are governed by the Negotiable Instruments Act, 1881.
Legal Provisions for Cheque Bounce in India:
Section 138 of the Negotiable Instruments Act, 1881: This is the key provision that deals with cheque bounce. Under this section, if a cheque is dishonored due to insufficient funds or because it exceeds the amount arranged to be paid by the account holder, it is considered a criminal offense. The act aims to ensure the integrity of transactions made using cheques.Key points of Section 138:Cheque Dishonor: If a cheque is dishonored by the bank due to insufficient funds, the payee has the right to file a complaint against the drawer (the person who issued the cheque).
Legal Notice: After the cheque is bounced, the payee must send a legal notice to the drawer within 30 days from the date of receiving the return memo from the bank. The notice demands payment of the cheque amount within 15 days of receiving the notice.
Filing a Complaint: If the drawer fails to make the payment within 15 days of receiving the legal notice, the payee can file a criminal complaint in court within 30 days from the expiration of the notice period.
Punishment: If found guilty, the court can impose imprisonment for up to two years and/or a fine that may be double the amount of the dishonored cheque.
Section 139 - Presumption in Favor of the Holder: There is a legal presumption under this section that the cheque was issued for the discharge of debt or liability. The burden of proof is on the drawer to prove that the cheque was not issued for the payment of debt.
Reasons for Cheque Bounce:
Insufficient Funds: The most common reason, where the account balance is lower than the cheque amount.
Signature Mismatch: The signature on the cheque does not match the bank records.
Overwriting: If the cheque contains any corrections or overwriting, it may be rejected by the bank.
Post-Dated Cheque: If a cheque is presented before the date mentioned on it.
Stale Cheque: A cheque is considered stale if it is presented after its validity period, usually six months from the date of issuance.
Account Closed: If the drawer’s account has been closed, the cheque will bounce.
Procedure to Handle Cheque Bounce:
Cheque Dishonor: When the cheque bounces, the bank issues a “cheque return memo” to the payee, indicating the reason for non-payment.
Issuing a Legal Notice: The payee must issue a legal notice to the drawer within 30 days of receiving the return memo. The notice should demand the payment of the cheque amount within 15 days.
Filing a Case: If the drawer fails to respond to the notice or make payment within 15 days, the payee can file a criminal case under Section 138 in the appropriate magistrate court. The complaint must be filed within 30 days after the 15-day notice period ends.
Court Proceedings: During the proceedings, the court will hear both parties. The payee must prove that the cheque was dishonored and that all the legal procedures, including the sending of notice, were followed. The drawer can defend the case by showing that the cheque was not issued for the discharge of any debt.
Punishment: If convicted, the drawer can face imprisonment for up to two years or a fine, or both. The fine can be up to twice the amount of the cheque. Additionally, the court may direct the drawer to compensate the payee.
Civil Remedies:
In addition to filing a criminal complaint under Section 138, the payee may also file a civil suit for recovery of the cheque amount. The civil suit would seek compensation for the dishonored cheque and any related damages.
Impact of a Cheque Bounce:
Legal Consequences: Criminal charges can lead to imprisonment or hefty fines.
Creditworthiness: Frequent cheque bounces can damage the drawer’s credibility, affecting future banking and credit relations.
Business Reputation: For businesses, cheque bounces can hurt reputation and client trust.
How to Avoid Cheque Bounce:
Ensure sufficient funds in the account before issuing a cheque.
Double-check the details like date, amount, and signature before writing a cheque.
Avoid issuing post-dated or stale cheques.
Cheque bounce is a serious offense in India, and strict laws ensure that cheque payments are honored. It is crucial for both individuals and businesses to handle cheques carefully to avoid legal and financial repercussions.