The procedure of Cheque Bounce Cases in India
In the age of Netbanking and E-wallets, businesses and corporations across India still prefer cheques, including post-dated ones to make and receive payments from vendors, suppliers, and customers. Cheques have become an important medium for business transactions as they provide proof of transactions. Data from the Reserve Bank of India (RBI) shows that the average number of transactions every month via cheques in 2012 stood at 16.53 million and as of the June 2018, the number of cheque-based transactions has increased to 94.7 million a month on an average. That makes us vulnerable to the negative side of this medium too i.e. cheque bounce matters.
What is Cheque?
A cheque is an order to the bank to pay someone/payee or holder in due course, on your behalf. A cheque is paid to the person who is known as Payee and is never paid before the date mentioned on it. At present, a cheque is valid only for three months from the date mentioned on it.
Legally, the person who has issued the cheque is called as ‘drawer’ and the person in whose favour the cheque is issued is called as ‘drawee’.
What is a Cheque Bounce?
Cheque Bounce is commonly used to describe a situation where a person who gets paid in the form of a cheque is unable to encash the same cheque. It is been defined in Section 138 Negotiable Instruments Act, 1881, as any cheque drawn by a person in payment to another person, which is returned to the bank unpaid because there is an insufficient balance in the account or the amount exceeds the prescribed account limit, etc. When a cheque is bounced for the first time, the bank issues a ‘cheque return memo’ along with reasons for the non-payment.
A cheque is said to be bounced when it is presented for payment to a bank but it is not paid due to certain reasons. The following are some of the reasons why a cheque is generally bounced:
- Signatures are not matching;
- There is an overwriting in the cheque;
- The cheque was presented after the lapse of three months (Expired Cheque);
- Insufficient balance in the account;
- Payment deliberately stopped by the account holder;
- The Account opening balance is insufficient;
- Confusion in the words and figures written on the cheque;
- In case the cheque is issued by a company, the same does not bear the seal/stamp of the company;
- Mismatch in account number;
- In case of joint account where signatures of both holders are required, only one sign is there;
- Insolvency of the customer;
- The insanity of the customer;
- Received a crossed cheque;
- The cheque is issued against the rules of trust;
- Alteration in info on cheque;
- Doubt in the genuineness of the cheque;
- Crossed the limit of overdraft.
Rules Regarding Cheque Bounce in India
In 1988, The Negotiable Instruments Act, 1881 got amended and Section 138 was inserted, thus making the bouncing of cheques in India not a criminal offence but still it can lead to criminal proceedings against the defaulter. The main objective of incorporating Section 138 in the act by an amendment in 1988 was to restore faith in the efficiency of banking operations and credibility in transacting business on negotiable instruments to prevent the issuance of dishonest cheques by the drawer.
Later, The Negotiable Instruments (Amendment) Bill, 2018 was brought in. In a move to prevent unscrupulous elements from holding back payment through often long-drawn litigation in cheque bounce cases, the government has to come up with a series of amendments to the Negotiable Instruments Act, 1881. This law was enacted to define and amend the law relating to promissory notes, bills of exchange, and cheques.
The key highlights of the new amendment are as follows:
- The above-mentioned amendment aimed to insert Section 143A and Section 148 in the act to provide that a court hearing a cheque bounce offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant. (till the judgement is pending)
- The drawer, who pleads not guilty of the accusation, will have to pay at least 20 per cent of the cheque amount as interim compensation within 60 days of the trial court’s order.
- An additional 20 per cent compensation will have to be paid if the drawer goes for an appeal.
- If the drawer is acquitted, the court may direct the payee to repay the amount paid as interim compensation with interest.
Procedure Of a Cheque Bounce Case
- If a cheque is bounced, a notice is sent to the opposite party within 30 days from the date of receiving ‘cheque return memo’ attaching the bounced cheque received from the bank.
- The above notice must be sent by the holder/receiver of the cheque, claiming the said amount for which the cheque has been bounced.
- The opposite party has 15 days from receiving of the notice to settle the whole matter and thus no cause of action arises till the expiry of these said 15 days or if the amount is paid within this specified period.
- After the completion of said 15 days, if the opposite party does not clear the matter and ignores the notice, then the holder/receiver of the cheque must file a cheque forgery case on the basis of cheque bounce memo given by the bank within one month (30 days) from the end of cheque bounce notice.
- If the case is filed after the said 30 days period, the delay can be ignored by the court on sufficient cause being shown. It rests entirely in the hands of the court to deal or not to deal with such a case.
While filing a cheque bounce complaint, the complainant is required to pay court fees. The Court fees vary depending upon the amount of the cheque against which the complaint is being filed. The requisite court fees for various cheque amounts have been listed below:
Amount on cheque Court fee
Rs.0 to Rs.50, 000/- Rs.200
Rs.50, 000/- to Rs.2, 00,000/- Rs.500
above Rs.2, 00,000/- Rs.1000
Punishment for Cheque Bounce in India
The punishment for cheque bounce in India is
- Imprisonment for up to 1 year,
- Fine which can be equal to double the amount of the cheque, or
To file a case under Section 138 of The Negotiable Instruments Act, 1881 one must keep in mind the below-mentioned conditions:
- The cheque should be issued to pay off some debt or liability only, and not for any donation or gift.
- The cause for cheque bounce should be an insufficient balance in the bank account of the issuer.
- Legal notice for the cheque bounce must be sent to the issuer of the cheque to allow him to make the payment before filing a cheque bounce case against him.
A cheque is an instrument of maintaining a fiduciary relationship between drawer and drawee. The amendment act is likely to have a significant impact on the cheque bouncing cases. The drawers of the cheque would presumably be more cautious while issuing cheques and delaying tactics of the drawer by way of frivolous appeal is more likely to be precluded. This shall go a long way in restoring the sanctity of the Cheque transactions.
A cheque bounce lawyer must be consulted to send a legal notice against a bounced cheque or to file a cheque forgery case in court. LetsComply’s legal experts can help you in achieving the same. To know more, call us at +91-9717070500 or send an email at email@example.com.