Monday, 7 February 2022

Cheque Bounce under Negotiable Instrument Act

                              Cheque Bounce under Negotiable Instrument Act


Introduction

Cheques are a common form of payment nowadays, and post-dated cheques are utilized in a variety of transactions. When this method of payment became more widespread, there were instances where cheques were dishonored or bounced, resulting in the payee not receiving the cash for delivering services or commodities. The need to criminalize the act of bouncing or dishonored checks arose. As a result, the criminalization of writing checks with insufficient funds in the drawer's bank account was enacted in 1988. An amendment was made to the old British law, the Negotiable Instruments Act of 1881, was made regarding the criminalization of such an offence.


What is cheque Bounce?

A cheque bounce is when the bank returns any cheques unpaid due to the insufficiency of funds in the account of the drawer and many other reasons. It is also called cheque dishonor. It is a dishonor of payment by the drawer to the drawee, due to some reasons. Legally, the drawer is the one who issues the cheque, and the one in whose Favour the cheque is issued is the drawee.  


Reasons for Cheque Bounce

When a cheque is bounced or dishonored, the bank produces a cheque return memo that explains why the cheque was bounced. A cheque bounce could be caused by one of the following factors:

The signature of the drawer does not match.

There is an overwriting on the cheque.

The cheque was presented after the validity of three months, i.e. the cheque is expired.

The account of the drawer is closed.

Funds are insufficient in the account of the drawer.

The payment has been stopped by the account holder itself.

Insufficient opening balance.

The words and figures mentioned on the cheque are inconsistent.

If a cheque is issued by a company and there is no seal of that company.

The account number does not match.

If the account of the drawer is a joint one, then the signature of both the holders is required. And when only one holder signature is there, the cheque is bounced.

The drawer or drawee has died.

The drawer has become insolvent.

The drawer has become insane.

It is a crossed cheque.

If the cheque is issued against the rules of the trust.

If there have been alterations in the cheque.

If the bank doubts the authenticity of the cheque.

If the drawee has presented the wrong branch.

If the cheque amount has crossed the limit of the overdraft.


Section 138 of the Negotiable Instruments Act



Section 138 of the Negotiable Instruments Act, 1881, states that a cheque is dishonored due to a lack of cash in the account, among other things. When a person with a bank account issues a cheque to another person for the payment of a certain amount of money out of that bank account to discharge, wholly or partly, any amount in debt or due to any other liability, the bank returns the cheque unpaid either because the amount of money standing in the credit in that bank account is insufficient to honors the cheque or if it exceeds the amount of money arranged to honor the cheque. Such person or that bank account holder shall be deemed to have committed an offence of cheque dishonor, and shall without prejudice to any other stated provisions of the Negotiable Instruments Act, and shall be punished with a maximum of imprisonment up to one year, or with a fine which may extend to twice the amount mentioned in the cheque, or both. An offence under this section is a bailable and non-cognizable offence.



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