Top 5 Reasons for Cheque Bounce in India and It’s Remedies
In India, cheque bouncing is a serious cognizable offence. There are many reasons for cheque bounce in India. If your cheque bounces, you have to send a cheque bounce notice or demand notice to the other party stating that you will initiate legal proceedings if the amount due is not paid.
Here is a comprehensive list of reasons for cheque bounce in India and ways to deal with it.
A cheque is a bill of exchange which is payable on demand. The one who issues the cheque is known as the drawer and the person in whose favor the drawer issues the cheque is known as the drawee. One has to deposit the cheque in the payee’s bank account.
If on submission of the cheque the bank gives an amount to the payee, the cheque is said to be honoured. But if the bank refuses to pay the amount mentioned in the cheque to the payee, the cheque is said to be dishonoured.
According to Section 138, of The Negotiable Instrument Act, cheque bounce can occur due to insufficiency of funds in the account, mismatch of signature or for any other reason. Cheque bounce is a punishable offence in India under Section 138. It stipulates imprisonment of two years with fine which can extend to twice the amount of cheque or both. Additionally, Section 143A talks about interim compensation to the complainant for the inconvenience caused due to the cheque bounce.
Cheque Bounce Timeline
Whenever a cheque bounces, the first thing the drawee bank does is to issue a cheque return memo to the payee mentioning the reasons for cheque bounce. The bank provides the memo and the dishonoured cheque to the payee. He has an option to resubmit the cheque within three months of the date mentioned in the cheque.
The payee has to firstly give a notice to the drawer/ issuer within 30 days of cheque bounce. Secondly, the payee has to mention that the cheque amount should be paid to the payee within 15 days of the receipt of the notice. But if the issuer or the drawer fails to make payment within 30 days of notice, the payee has the right to initiate legal proceedings against the defaulter under section 138 of the Negotiable Instrument Act.
If you don’t file a complaint within this period, your suit will not be entertained by the Court as the limitation period is over unless you show reasonable cause for delay. On receiving the complaint, the Court will issue summons and hear the matter. And if found guilty, the defaulter will be liable to imprisonment of 2 years or fine or both as the Court deems fit.
The defaulter is also given a chance of appeal to the Sessions Court within 30 days of the order of the Lower Court. There is also an option of filing a case under section 420 of the Indian Penal Code for cheating.
Exemptions for Cheque Bounce Notice
A cheque which is drawn in the name of a charitable trust as a donation or application amount of shares will not come under the purview of dishonor. There are cases when there are minor alterations or corrections in the cheque, these cases don’t fall under the purview of cheque bounce, but the banks may impose some penalty for this.
Top 5 Reasons for cheque bounce in India
There has been an increase in daily transactions. For easing business, people have been using cheques. With this, we have also seen incidences of cheque bounce on the rise. Sometimes it is done intentionally and sometimes unintentionally. A cheque bounce invites a legal action, and therefore it is very important to know the reasons for cheque bounce. Here is a comprehensive list of reasons for the dishonour of cheque.
Insufficient Funds in Bank Account
If there is a lack of funds in the bank account from which the cheque is issued, then the cheque bounces. This is one of the most important and common reasons for cheque bounce. The banks will stop the payment and levy a nominal penalty on both the party.
After this, there are two circumstances, either the issuer will issue a new cheque or face legal action for non-payment of the cheque. Therefore you should always have sufficient balance in your account to avoid getting into a legal tussle.
Wrong Date of the Cheques
It is very important to mention the correct date in the cheque. Many times the issuer of cheque mentions a wrong date or a disfigured scribbled number, this leads to cheque bounce. Furthermore, if he mentions a date which is more than 3 months old, then the bank dishonour the cheque. If the cheque date is post-dated and it is deposited earlier than due, it will also lead to cheque bouncing.
Mismatch of Signature
There are many circumstances when signatures mismatch. The bank will dishonour the cheque if the signature is mismatched. Many times people forget their signature and put a wrong signature on cheque, and as a result, it does not match the bank record and lead to cheque bounce. Therefore it is advisable to always be mindful of the signatures in the cheque.
The wrong amount mentioned in Words and Numbers
If the amount mentioned in words and numerical in the cheque is different, it also amounts to cheque bounce. It is a very common mistake of the drawee, he by-mistake mentions a different amount in both the sections for amount in words and numerical.
Disfigured Cheque or Overwriting on Cheque
When the cheque is damaged or disfigured meaning it is not in good condition, and the details are not visible properly, then the cheque will bounce. Therefore, you should always keep the cheque properly. One of the most important things to remember is that no scribbling or overwriting is permitted and if the bank finds this, they will dishonor the cheque.
These are the top 5 reasons for a cheque bounce in India, and you should follow them to avoid getting into a cheque bounce case. It should always be kept in mind that a cheque a legal liability and you should follow the procedure for legal notice and demand funds from the drawer in case of cheque bounce.
Remedies for Dishonour of Cheque
The payee cannot initiate legal proceedings without issuing a legal notice first. If the drawer doesn’t pay the money the second time also, then payee can opt for legal remedy within 30 days of the receipt of the cheque return memo. On receipt of legal notice, the defaulter has an option to settle payment out of Court or proceed with the Hearing.
The first and foremost remedy is to send a legal notice for cheque bounce. Below is a detailed procedure for sending a cheque bounce notice.
Following are the steps for issuing a legal notice for cheque bounce-
- The payee has to send a demand notice within 30 days of bouncing of the cheque. The issuer has to make the payments within 15 days of cheque bounce notice.
- The payment is not made within 15 days, and the payee will initiate legal action against the issuer within 30 days of the legal notice.
- You have to hire a lawyer and approach the Court for filing the case under section 138 of the Negotiable Instrument Act. Generally, people take help for drafting the notice for cheque bounce as a specific format is to be followed, mentioning all the key details of the case.
A Civil Suit
While the above procedure is the most sought process for cheque bounce, it may not always result in the recovery of all pending dues. Hence, the payee should file a separate civil suit for recovery of the cheque amount along with the cost and lost interest.
A summary suit can be filed under Order 37 of the Code of Criminal Procedure Code, 1908. This is different from an ordinary suit as it does not give accused the right to defend himself. These suits can be filed only for recovery matters.
After-effects of Cheque Bounce
Imprisonment or a huge fine isn’t the only penalty for cheque bounce. Some of the after-effects are that the bank stops the cheque book facility and might even close the account if you are a repeated offender.
Cheque bounce is a common problem prevalent in Indian society due to lack of strict punishments even though it has a comprehensive law to deal with cheque bounce. People should avoid getting into a legal battle for dishonour of cheque as it a waste of time. Instead, they should keep in mind the above reasons for cheque bounce and avoid the dishonour of cheque. But if you are facing a cheque bounce always hire good professional lawyers to draft your cheque bounce notice.