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Cheque Bounce In India

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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.

Time Frame

  • 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
  • Complaint
  • Oath letter
  • Affidavit

*Any fee, stamp duty, and miscellaneous charges shall be payable extra.

Contact us for any query related to dishonor of cheque and much more. And to avail any of the above-stated services, kindly establish contact by posting a query at our site.

LawyerINC has a pool of expert lawyers, who will assist in filing the criminal complaint and represent you in the Court. In case the payor fails to make the payment after an expiry of the notice period, you can contact us for filing a criminal complaint.

Court fees for filing of cases

Total amount on cheque Court Fee
Till Rs. 50,000/- Rs. 200
Rs. 50,000 to Rs. 2,00,000/- Rs. 500
Above rs. 2,00,000/- Rs. 1000

When can the complaint be filed under section 138 of the Negotiable Act, 1881?

The written complaint needs to be filed within one month of the offence under section 138. If there is a delay, the complainant needs to satisfy the court that the delay was due to reasonable ground, if the Court is satisfied then only the case will be registered.

The legal consequences of cheque bounce in India

When the payment is fulfilled within 15 days from the date of receipt of the notice, then the payor is not said to commit an offence. If it would not have been done then, then the payee may proceed to file a complaint within one month from the expiry of the notice period.

If the payor is found guilty, he will be punished with a penalty of twice the amount mentioned in the bounced cheque or imprisonment for a maximum two years or both. The bank can further stop the payor’s cheque book facility, and it can also close the bank account in case of repeated offenders

Why Choose LawyerINC?

  • Free consultation or enquiry
  • We will get in touch with you through an expert cheque bounce lawyer who is well versed with the entire procedure of dishonor of cheque.
  • Expert guidance throughout the procedur
  • Assistance in drafting of the complaint
  • Assistance in the Trial Procedure
  • Fixed payments in the beginning to avoid conflict

Frequently Asked Questions

  • 1. What will happen if the complaint is not filed within 30 days after the expiry of 15 days period in the legal notice?

    If the complaint is not filed within the stipulated time period, then the case will lapse and you cannot initiate prosecution against the payor. However, if there is reasonable grounds for delay the Court may grant permission to file the case.

  • 2. Is the offence of dishonor of cheque compoundable?

    Yes, the dishonor of cheque is a compoundable offence as per the Negotiable Instruments Act, 1881.

  • 3. Can one get arrested for dishonor of cheque in India?

    Yes, it is stipulated under section 138 of the Negotiable Instrument Act,1881 that if the person fails to make the payment under the prescribed time frame, then he can face imprisonment for term extending to two years.

  • 4. What will happen if the case of cheque bounce is against a company?

    If the payor is a company or a firm, a case for dishonor of cheque can be filed against the director or the partners of the company. The case can be filed against the company also.

    If it is found that the company has defaulted, then the person who is responsible for the issuance of the bounced cheque along with the company will be guilty under section 138.

  • 5. What are the impacts of a cheque bounce?

    Dishonor of cheque is a criminal offence which further impacts the credit history and worthiness because they are mentioned in your bank account statements. The banks nowadays, require their customer to furnish the bank statement for a period of 1 year for processing the loan facility. If occurrence of cheque bounce is mentioned in the bank statements then the bank will rethink about providing you loan because of low credit worthiness.

  • 6. What are the alternative remedies available for cheque bounce?

    Generally, the offence of dishonor of cheque attracts civil suit for recovery of money. However, in special circumstances, where the cheque amount is huge, a criminal case can be filed under section 420 of Indian Penal Code for cheating.

  • 7. Can one recover the interest and the legal expenses incurred from proceedings?

    Yes, we can recover the interest and the legal expenses from the payor. However, a separate summary suit is needed to be filed for recovery of such amounts. This amount cannot be recovered under the proceedings held under section 138 of the Negotiable Instruments Act. In the proceedings under section 138, the defaulter can be imprisoned for a term extending upto two years or fine which extends to twice the amount mentioned in the cheque or both.

  • 8. What is the time duration for resolution of the cheque bounce case?

    Considering the number of cases pending in India, it is difficult to state the time taken for disposing a cheque bounce case. It totally depends on the place where the case has been filed and it varies from cases to case.

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