Cheque Bounce In India

Posted by legal services on March 4th, 2020

Introduction

Cheques are one of the most common and safest methods of making a financial transaction in business and in personal transactions also. In India, cheques are one of the main causes of legal disputes. There are over 2.5 lakh cases registered related to cheque bounce in India.

Definition of Cheque

“Cheque is a negotiable instrument in writing containing an unconditional order, addressed to a banker, signed by the person who has deposited money with the banker, requiring him to pay on demand, a certain sum of money only to the order of a certain person or to the bearer of the instrument.”

When a Cheque is said to be Bounced?

A bank under certain conditions may refuse payment of cheque or is bound to dishonor a cheque, then the cheque is considered bounced. The cheque bounce is treated as an offense and action can be taken under Section 138 of The Negotiable Instruments Act when the cheque is dishonored for insufficiency of funds in the account of a customer.

Why do Cheques Bounce in India?

There are several reasons due to which cheques bounce in India. The reasons for cheque bounce include:

• There are insufficient funds in the issuer’s bank account.
• The signature of the issuer recorded in the bank does not match with the signature on the cheque.
• The date mentioned on the cheque is disfigured or incomprehensible.
• The amount written on the cheque in numbers and amount does not match.
• The cheque has expired. (The validity of cheques in India is 3 months from the date mentioned on it)
• The bank suspected of fraud or forgery regarding the cheque.
• The cheque is torn or damaged.
• The account number to which the cheque is drawn does not match.
• There is some cheque overwriting on the cheque.

The Process & Time of Sending Notice of dishonor

• The Payee[Person to whom the money is paid] need to make a demand for the payment of money to the Payor[Person who pays the money] by giving registered notice to the Payor within 30 days of the receipt of information from the bank regarding the unpaid return of the cheque.

Steps to initiate prosecution for a cheque bounce:-

To start prosecution under Section 138, the following three conditions are needed to be fulfilled.

• The cheques must have been presented to the bank within three months of its issue or within the period of its validity. Previously the validity of cheques was considered to be six months; however, Reserve Bank of India directed to reduce the validity period of cheques from six months to three months w.e.f 1st April 2012.
• The payee [Person to whom the money is paid] should have made a demand to the Payor [Person who pays the money] for payment by registered notice after the cheque is returned unpaid.
• The Payor must have failed to pay the amount within 30 days of the receipt of the notice.

Prosecution under Section 138 can be launched against:-

The prosecution can be initiated against the payor and if a company commits an offense under this section, then the company and every person who were in charge and were responsible to the company at the time when the offense was committed, shall be deemed to be guilty of the offense and be liable to be proceeded against.

If a person or a company takes a loan from the bank and has consecutively made the payment on time but cheque has been bounced even for a single EMI payment, the banker may file a case of cheque bounce against the person or the company.

Implications of a cheque bounce:-

Bounced cheques do not get reflected on traditional credit reports generally, but they are reported on the bank account statement. All nationalized and private banks today ask the customer to provide their respective bank statements for a period of up to 1 year for any loan processing. Certain cheque may affect loan eligibility and creditworthiness.

How to avoid cheque bounces?

One should never write a cheque without money in his/her own bank account.

Legal Actions against Bounced Cheque case in India

After the cheque gets bounced in any bank, the bank sends a Cheque Return Memo or the cheque bounce memo to the account holder which mentions the reason for bouncing the cheque. If it is bounced due to some minute error, a simple notification mentioning the cheque bounce can be sent.

Though if the cheque is bounced due to some intentional action by the issuer, one can take the following legal actions against in India:

• The cheque can be resubmitted within 3 months if one has informed the issued and the person has promised that the cheque will be honored in the future.
• After receiving the cheque return memo from the bank, one can send a legal notice to the issuer within 30 days from the date of receiving the cheque return memo.
• The legal notice for cheque bounce must consist of details of the amount payable, the date of issuing the cheque, the date on which the cheque was deposited in the bank, etc.
• If the issuer does not pay within 15 days of receiving the legal notice, one can file a case under Section 138.
• If a cheque bounce case is not filed within a specific period, the court may consider it as a false case and refuse to concede the case unless an authentic reason is given.
• After the completion of complaint filing in court, the Magistrate issues summons for the issuer to appear before the court.
• If the issuer is found guilty then the person would be liable for punishment under Section 138.
• A civil suit can be filed for recovery of the pending amount. A civil or summary suit can be filed to recover the cost which was incurred to recover the pending amount or the interest on the pending amount.