Cheque Bounce In India
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In this modern era, cheques are the most common, reliable and safe way to conduct financial transactions ranging from payment of salary, or bills to re-payment of loans. The banks process a vast majority of cheques in India on a daily basis. However, the issue of dishonor of cheque or cheque bounce is one of the most common reasons for a legal dispute in India.
- Legal Notice within 30 days from the dishonor of cheque
- 15 days time given for making payment from the date of receipt of notice
- If the payor fails to pay within the stipulated time, then criminal complaint under section 138 filed within 30 days from the expiry of 15 days time period given under notice.
What Is A Cheque Bounce Or Dishonor Of Cheque?
A bill of exchange which is drawn upon a banker and only to be paid on demand is called a Cheque. A cheque is bounced when it is submitted to the bank, but it gets rejected by the bank. It might occur due to insufficient funds or if the signatures don’t match etc. The banks return the cheque along with return memo to the account holder stating the reasons for such return.
Following are the reasons for the dishonor of cheques
- Insufficient funds
- Mismatch of signature
- Expired Cheque
- Date mentioned on cheque is unreadable
- Difference in amount written in words and numericals
- Damaged Cheque
- Account number does not match
- Overwriting on the cheque
- Suspicion of fraud by the bank
If The Cheque Is Bounced Due To Insufficiency Of Funds, One Can Proceed Further Under Section 138 Of The Negotiable Instruments Act And Register A Case.
- Legal Recourse available for dishonor of Cheque
- you can send a notice to the person
- If there is no response within 15 days of the legal notice then a complaint in Court can be filed.
Indian Laws On Cheque Bounce
Section 138 of the Negotiable Instruments Act, 1881
If a cheque is bounced in India due to insufficiency of funds or if the mentioned amount is more than the amount which was earlier agreed to be paid, it attracts penalty under section 138 of the Negotiable Instruments Act, 1881.
In India, dishonor of cheque is a criminal offence, and if any person is found guilty, he is liable to a punishment of either maximum two year imprisonment or fine which may extend to twice the amount mentioned in the cheque or both.
Under Section 138, legal notice along with the return memo needs to be sent to the defaulter within 30 days of cheque bounce. It further states that it if the payment is made to the person in whose name the cheque is issued within the span of 15 days of receiving the notice of cheque bounce, then no such case lies under section 138. But, if there is no reply after 15 days of notice, the payee is at liberty to file the case.
New Provision For Cheque Bounce
Section 143A of the Negotiable Instrument Act, empowers the court to grant interim compensation to the complainant in a summary trial if the drawer pleads not guilty or in any other case. The compensation should not exceed 20% of the amount mentioned in the cheque. And if the drawer is acquitted then the payee may be directed to refund the amount along with interest. The interim compensation needs to be paid within the period of 60 days from the Court order which can be extended to 30 days.
Further, under section 148, the Appellate Court has the power to order payment which is minimum of 20 % compensation awarded by the Trial Court which was pending under section 138. This amount will be additional to the amount given under section 143A. If the Appellant is acquitted then the entire deposit needs to be refunded. The deposit shall be paid within 60 days from the order of Court.
What Conditions Are Needed To Be Fulfilled For Initiating Prosecution?
Following are the conditions needed for initiating prosecution in case of cheque bounce
- The cheque is to be presented to the bank within three months of issue or within its validity earlier, the validity was six months which is now reduced to three months vide RBI notification RBI/2011-12/251DBOD.Aml bc.No.47/14.01.001/2011-12
- The cheque is drawn by the drawee on his bank account
- The cheque should be bounced
- The payee or the drawee needs to demand payment by registered notice after the cheque was bounced.
- The payee failed to pay within 30 days from the receipt of notice.
What Is The Recourse Available Under Section 138?
Under 138, the prosecution can be initiated, if the person fails to pay the amount within 30 days of the receipt of notice from the payee.
Who Can The Prosecution Under Section 138 Be Launched Against?
The case can be filed against the payor and in case a company has committed an offence under section 138, then the people who were in charge and responsible for the deeds of the company will be liable to be proceeded against along with the company.
Who Has The Authority To File The Case Of Cheque Bounce?
Normally, the payee of the cheque has the right to file the cheque bounce case. But in certain circumstances, the case can be instituted through the power of attorney. The complainant has to appear before the Magistrate, and the Magistrate will further examine him on oath.
Where Can A Dishonor Of Cheque Case Be Filed?
As per the Negotiable Instrument Act, the complaint can be filed in the court in whose jurisdiction the drawee bank is or in other words, where the cheque was submitted. In this case, the Court where the case is filed should not be lower than the Metropolitan Magistrate or the Judicial Magistrate of First Class,
Procedure For Filing Case For The Dishonor Of Cheque
- Send demand notice to the payor within 30 days of receiving the cheque return memo.
- Once notice is received, the payor needs to make payment within15 days.
- If the payor or the drawer fails to pay, the drawee or the payee can lodge a complaint. Legal complaint filed on your behalf by lawyers accompanied with relevant documents.
- Once the court receives complaint, it will issue a process form after document verification and the accused will be summoned.
- A Civil suit or a Summary proceedings will be intiated against the accused under section 138 and the Court will dispose of the matter.
Documents Required For Filing Cheque Bounce Case
- Original bounced cheque
- Copy of notice demanding payment alng with acknowledgements
- Bank return memo
- Copy of receipts and postal receipts
- Oath letter
*Any fee, stamp duty, and miscellaneous charges shall be payable extra.
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