Do's & Don'ts in case of a Cheque Bounce

 What is Cheque Bounce?

When a cheque is returned by the bank unpaid, it is said to be dishonoured or bounced. Cheque bounce could occur due to several reasons such as insufficiency of funds, etc. When the cheque is bounced for the first time, the bank issues a ‘cheque return memo’ along with reasons for non-payment.

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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 as 'drawer' and the person in whose favour the cheque is issued is called as 'drawee'. The following are the essential characteristics of a cheque:

 

It has to be in writing

It has to be an unconditional order

Banker has to be specified

Payment should be directed to a specified person

It should be payable on demand

It should be for a specific sum of money

Should have the signature of the drawer

 

Cheque Bounce Reasons

A cheque is said to be dishonoured or bounced when it is presented for payment to a bank but it is not paid because of some reason or the other. The following are some of the reasons why cheque bounce really occours:

 

Signature is not matching

There is overwriting in the cheque

Cheque was presented after lapse of three months, i.e. after the cheque has expired

Account was closed

Insufficient funds in the account

Payment stopped by the account holder

Opening balance insufficient

Disparity in the words and figures mentioned on the cheque

In case the cheque is issued by a company, the same does not bear the seal of the company

Mismatch in account number

In case of joint account where both signatures are required, only one sign is there

Death of the customer

Insolvency of the customer

Insanity of the customer

Crossed cheque

When a cheque is issued against the rules of trust

Alteration in cheque

Doubt in genuineness of the cheque

Presented at the wrong branch

Crossing limit of overdraft (OD)

Consult: Top Cheque Bounce Lawyers in India 

 

How to file a Cheque Bounce case?

Cheque bounce is a criminal offence in India, covered under Section 138 of the Negotiable Instruments Act. In case of cheque bounce, the following actions can be taken by the payee of a cheque:

 

Filing a Cheque Bounce 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 dishonoured the next time.

Yet another way is to send a legal notice with the help of your cheque bounce 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 138 of 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 summons and hear the matter. If found guilty, the defaulter can be punished with a prison term of two years and/or a fine, which can be as high as twice the cheque amount. However, the defaulter can appeal to the session’s court within one month of the date of the judgment of the lower court. If a prolonged court battle is not acceptable to both the parties, an out-of-court settlement can be attempted at any point.

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Filing a 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 cheque bounce 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 Procedure 1908 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.

Related Post: How to File a Cheque Bounce Case??

 

Consequences of Cheque Bounce

Cheque bounce is one of the most common financial offences in India that can cause disastrous consequences to the issuer. Below-mentioned is a few ways through which a cheque bounce can affect you:

 

Bank Penalty: If a cheque bounce takes place due to insufficient funds or a signature mismatch or any of the other technical reasons as previously mentioned in this article, the defaulter and the payee are charged a penalty amount by their respective banks. This penalty is generally an NSF fee, i.e. when there are insufficient funds in the account and the bank decides to bounce the cheque. The amount of this fee depends upon the reasons and nature of cheque bounce along with the type of account. In case the bounced cheque is towards repayment of a loan, the bank would also levy additional late payment charges along with the penalty charges.

 

Negative influence on the CIBIL score: A cheque bounce can badly impact your financial credit history. A cheque bounce for the first time can only damage your CIBIL score irreparably to an extent that you might get denied a loan in the future. In order to ensure a healthy CIBIL score, one must always make sure that his cheques never gets dishonored and must keep at least some thousands more than the minimum balance in the account even after the cheque has been encashed.

 

Civil or Criminal action against the issuer: A bounced cheque can also attract possible civil or criminal action against the issuer if the aggrieved party does not receive the promised funds. In a situation where a cheque has been dishonored, the aggrieved party has an option to file a case under section 138 of the Negotiable Instruments Act, 1881 or Section 420 (Cheating) of the Indian Penal Code, 1960.

If a case has been filed under section 420, a non-bailable warrant can be issued against the issuer of the cheque. However, to initiate proceedings under this section, a case of cheating has to be proven against the issuer. In case the bounced cheques are more than one, separate cases for different cheques can be filed.

 

Other Risks: According to the RBI guidelines, the banks can prohibit the issuance of cheque books to any customer if he has been charged at least four times for cheque bounce for an amount of over Rs. One Crore. Further, if the cheque that has bounced is the one issued as an EMI towards repayment of a loan, the bank has all the rights to issue a legal notice and to deduct money from your active account.

Consult: Top Cheque Bounce Lawyers in India 

 

Why is it important to hire a lawyer?

As stated above, cheque bounce can attract possible criminal charges. By hiring a cheque bounce lawyer to file or to defend a cheque bounce case is one way you can ensure that you are on the right path in your cheque bounce journey. While the attorney will need to gather information from you regarding the case, he or she will also take care of all the paperwork, allowing you more time to take care of your business and other priorities. An experienced attorney can give you expert advice on how to handle your cheque bounce case owing to his years of experience in handling such cases. A cheque bounce lawyer is an expert on the laws and can help you avoid significant mistakes that may cause financial or legal harm, which may require future legal proceedings to correct. Thus, by hiring an attorney a person can make sure that he and his interests are protected under the law.

 

Dos and Don’ts in case of cheque bounce

After all the points and information given above, the following are 10 key points and essential factors  that you must keep in mind in case of a dishonour of cheque:

One should never alter the amount on the cheque after receiving the cheque.

One should never alter the date once written on the cheque.

The cheque involved must be legally enforceable in the country against a liability or a debt.

The cheque should have been presented within its validity period of 3 months.

In case of cheque bounce, the demand notice shall be issued within 30 days of such dishonour. It is advisable to hire a lawyer for the same.

In order to successfully register a case of cheque bounce, the payer/drawer must fail in fulfilling the pending payment within 15 days from the receipt of the notice.

The complaint should be made as soon as the 30 day period from the date of the notice expires. Any delay in filing of the complaint will only be granted in certain exceptional circumstances if the Court deems fit.

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What happens if a cheque bounce issue is not resolved?

Cheque bounce cases are one of the most common offences affecting today’s financial world. There are over 40 lakh pending cases of cheque bounce in India as per the Supreme Court of India. A cheque bounce can lead to numerous consequences for the payee as well as the receiver, such as bank penalty, negative influence on the CIBIL score, civil or criminal action against the issuer, etc. To add to this, in case an action is not taken against the payee by the receiver within the prescribed time, it can also lead to lack of remedy for the receiver of the cheque as a case for cheque bounce is time-bound. Thus, it is important to address a cheque bounce case as soon as possible in order to avoid all the consequences involved.