What To Do When Your Cheque Bounces?

Cheque bounce is a condition that arises due to the non-payment of the amount because of the lack of balance in the account. For the recovery of the amount, prompt action must be taken. Firstly a letter is sent to the drawer to make the payment otherwise proceedings shall be initiated. Sometimes a prompt settlement is done on the letter. Cheque Bounce is a serious offense that is punishable by imprisonment and a fine which is stated in the Negotiable Instrument Act. The drawer of the cheque should present the cheque within 30 days from the date of dishonoring of the cheque just to protect his rights as stated in the Negotiable Instrument Act. In India, as per Section 138 of the Negotiable Instruments Act, cheque bounce or cheque non-payment is a serious offense punishable with a fine or imprisonment.

Before We Proceed Further Let’s Just Understand What is a Cheque?

A Cheque is a bill of exchange drawn upon a specified banker and is payable only on demand. Legally, the person who has issued the cheque is called a ‘drawer’ and the person in whose favor the cheque is issued is called a ‘drawee’. The following are the essential characteristics of a cheque:

1. It has to be in writing
2. It has to be an unconditional order
3. The banker has to be specified
4. Payment should be directed to a specified person
5. It should be payable on demand
6. It should be for a specific sum of money
7. Should have the signature of the drawer

There can be several reasons for the check bounce

We have listed here a few reasons for the cheque bounce

1. Alteration in cheque
2. Doubt in the genuineness of the cheque
3. Presented at the wrong branch
4. Crossing the limit of overdraft (OD)
5. Insolvency of the customer
6. The insanity of the customer
7. Crossed cheque
8. When a cheque is issued against the rules of the trust
9. In case the cheque is issued by a company, the same does not bear the seal of the company
10. Mismatch in the account number
11. In the case of a joint account where both signatures are required, only one sign is there
12. Death of the customer
13. Insufficient funds in the account
14. Payment stopped by the account holder
15. Opening balance insufficient
16. The disparity in words and figures mentioned on the cheque
17. The signature is not matching
18. There is overwriting in the cheque
19. The cheque was presented after a lapse of three months, i.e. after the cheque has expired
20. Account was closed

Let’s see what the law says…

As it stands, the ingredients required to constitute an offense relating to the dishonor of cheques have been mentioned within Section 138 of the Negotiable Instruments Act, 1881, and have been reproduced below:

1. the cheque should have been issued in discharge of a legally enforceable debt or liability
2. the cheque should have been presented within the period of its validity
3. the cheque should have been dishonored for want of funds in the account of the drawer
4. the payee or holder of the cheque should have issued, within thirty days, a notice in writing to the drawer demanding the amount of the cheque
5. the drawer must have failed to make payment within fifteen days of receipt of the notice.

The intention of the drawer is not considered relevant when deciding his culpability under this Section. Furthermore, it is worth noting that Section 141 of the Negotiable Instruments Act also renders liable, companies, partnership firms, and other associations of individuals liable for the offense mentioned in Section 138. Typically, the persons in charge of the company (usually directors or partners, as the case may be) are held liable for punishment under the same. They may claim defense on the grounds that the offense was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such an offense. The Court trying a case under Section 138 may order interim compensation not exceeding twenty percent of the amount of the cheque to the payee during the pendency of the case.

Before serving notice keep this information handy:

• Date when the cheque was drawn.
• Date of presentation of the cheque.
• Reason for non-realization of payment.

The cheque bounce notice must contain the following essential elements

• Name of the cheque beneficiary,
• Name and address of the check issuer,
• The return date of the cheque,
• Reasons for cheque return,
• Request made to check issuer for immediate alternate payment and
• That it is issued as per Section 138 of the Negotiable Instrument Act.

A cheque bounce notice is sent through the registered post for the purpose of the recording issuing date of notice formally. A cheque beneficiary can retain one copy of the letter with himself whereas the other copy is delivered to the cheque issuer through registered post.

When can a cheque bounce notice be issued?

• The cheque must be presented within 6 months from the date of its issue.
• The cheque must have been dishonored due to non-sufficient funds.
• The maker of the cheque has not paid the amount within 15 days from the date of serving the notice regarding the bouncing of the cheque.
• The beneficiary has intimated the maker of the cheque within 30 days from the date of bouncing of the cheque.
• The cheque has been provided for the settlement of any past liability.

Filing a cheque bounce case

Civil Suit

In case of non-recovery of the due amount during the long battle of legal dispute, one can separately file a civil suit with the help of a lawyer, for recovery which would cover the costs borne by the petitioner during the legal battle. This is where a summary suit under Order 37 of the Code of Civil Procedure1908 comes in. A summary suit is different from an ordinary suit as it does not give the accused the right to defend himself. Instead, the defendant has to procure permission from the court to do so. Summary suits can be availed of only in recovery matters, be it promissory notes, bills of exchange, or cheques.

Criminal Case

In case of a cheque bounce, the payee is eligible to resubmit the cheque within 3 months of the date of issue if he knows that it would not be dishonored the next time.

Yet another way is to send a legal notice with the help of your lawyer, to the defaulter within 30 days of receiving the cheque return memo. All the relevant facts of the case, including the nature of the transaction, amount, date of depositing the instrument in the bank, and the subsequent date of dishonoring should be clearly mentioned in the notice. If no action is taken on the notice and a fresh cheque or repayment is not done within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138of the Negotiable Instruments Act. The complaint should be registered in a magistrate’s court within a month of the expiry of the notice period. On receiving the complaint, along with an affidavit and relevant documents, the court will issue a summon and hear the matter. 

Punishment and Penalty

On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue a summons and hear the matter. If found guilty, the defaulter can be punished with a monetary penalty which may be twice the amount of the cheque, or imprisonment for a term that may be extended to two years or both. The bank also has the right to stop the cheque book facility and close the account for repeat offenses of bounced cheques.

If the drawer makes payment of the cheque amount within 15 days from the date of receipt of the notice, then the drawer does not commit any offense. Otherwise, the payee may proceed to file a complaint in the court of the jurisdictional magistrate within one month from the date of expiry of the 15 days prescribed in the notice.