Dos & Don'ts of a Cheque Bounce Case in India

Read LawRato’s law guide on cheque bounce cases in India to safeguard your interest in such a matter and learn more about the loopholes in a cheque bounce case.

What is a Cheque?

A cheque is a bill drawn on a specific banker that is only payable upon demand. The person who issued the check is legally called the 'drawer,' while the person to whom the cheque was issued is known as the 'drawee '.

Here are the main characteristics of a check:

1. The cheque must be written

2. The order must be unconditional

3. Banker must be specified

4. The payment should be made to a specific person

5. Payment should be made on demand

6. The amount should be specified

7. The drawer's signature should be included
    

Parties to the Cheque

Drawer: Also known as the & quot author of the cheque,& quot the term & quot drawer& quot refers to the individual who issues the cheque. (In some circumstances, the drawer may be the debtor.)

Payee: The individual on whose behalf the cheque is drawn and to whom the specified amount on the cheque is payable is referred to as the & quot payee.& quot (The Creditor may also be the Payee.)

Drawee: The bank in charge of or authorised to pay out the specified amount on the cheque is referred to as the drawee.

Payee's Bank: The 'payee's banker' is the bank where the payee has an account and where the amount of the cheque must be deposited or credited, particularly in the case of a crossed cheque.

What is a 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 & lsquo cheque return memo' along with reasons for non-payment.

How to File a Police Complaint for Cheque Bounce?

A legal notice must be given to the check's issuer within a certain amount of time after receiving a bounced check due to insufficient funds. Under Section 138 of the Negotiable Instruments Act of 1881, legal action may be taken if the payment is not made in accordance with the notification. It is crucial to know that even though India's laws regarding cheque bounce incidents are criminal in nature, the procedure does not need making a police report. Instead, a Section 138 complaint needs to be filed with the relevant magistrate.

Even if someone presents a model police complaint for a bounced cheque, the magistrate is often consulted. This means that unless there are other severe claims, a bounced cheque does not automatically result in an arrest. Imprisonment may be issued as punishment if the court determines that the defendant violated the terms of the cheque.

Cheque Bounce-related Law in India

The Negotiable Instruments (Amendment) Act, 2018 The fine for a bounced cheque is specified in Section 138 of the NI Act. It offers the legal means to pursue compensation for a bouncing cheque. The primary objective is to commit the crime in order to use cheques and increase the legitimacy of dealing with cheques. A breach committed in accordance with Section 138 is not a separate offence. Bail is also an option for this crime.

New Cheque Bounce Rule The Negotiable Instruments (Amendment) Act, 2018, made significant amendments to the Negotiable Instruments Act, 1881, which governs how cheque bounce cases are handled in India. Some significant changes include:

1. Under the revised law, instances involving cheque bounces must be handled within six months of the day the complaint was filed. This quickens the legal procedure and gives individuals who are harmed quicker relief.

2. Prior to now, a cheque bounce case could only be brought up in the location where the cheque was cashed. The new law does allow complainants to file complaints in the location of their bank branch or the location where the cheque was issued.

3. The amendment permits the compounding of crimes involving bounced cheques. This indicates that the dispute can be resolved amicably, without a trial, between the complainant and the defendant. However, only first-time offenders are covered by this clause.

4. Repeat Offenders now face harsher sanctions. A person can receive up to two years in prison and a fine up to twice the value of the bounced cheque if they have been found guilty of cheque bounce two or more times.

Early in August 2021, the Reserve Bank of India (RBI) sent a letter explaining new guidelines for consumers using cheques. People who frequently use cheques or who just prefer to use them must abide by these rules. Customers are required to maintain a minimum bank balance under these regulations or their cheques may bounce. Additionally, penalty fees may apply to people who write cheques without keeping the necessary minimum amount.

Updates to the National Automated Clearing House (NACH), which is important for cheque clearance, are also a result of these improvements. These changes, which apply to both public and private institutions, have been made to improve and speed up the clearance of cheques. Additionally, it guarantees that the NACH is operational 24/7.

Section 420 in Cheque Bounce Usually, bounced cheques are settled with reimbursement rather than imprisonment under Section 138 of the Negotiable Instruments Act. Legal remedies, however, may differ if the complainant was the victim of fraud, including dishonesty or a criminal breach of trust.

For instance, the complainant may submit a police report under Sections 138 of the NI Act and 420 and 406 of the Indian Penal Code if a cheque is issued for immediate encashment, items are purchased on false pretences, and the cheque bounces, suggesting fraudulent intent. This demonstrates how legal guidelines change to manage incidents of cheque bounce including dishonesty and fraud.

Cheque Bounce - Cheating and Double Jeopardy Article 20(2) of the Indian Constitution recognises the legal protection against being subjected to several trials for the same offence as a basic right. Is Section 420 in circumstances of cheque bounce (Section 138 of the Negotiable Instruments Act) considered double jeopardy?

It has been made clear by recent rulings from the Karnataka and Gujarat High Courts (Rashmi Tandon and Sangeeta Ben Patel that double jeopardy does not apply to criminal prosecutions brought under Sections 406 and 420 of the Indian Penal Code. This discrepancy is made possible by the fact that Section 138 of the NI Act doesn't demand evidence of guilty intent. Legal action may be pursued even if someone unintentionally issues a bounced cheque because there are not enough funds.

However, it is illegal to willfully mislead someone into thinking there are enough cash to qualify for assistance. Consequently, in these circumstances, filing a police report about a bounced cheque does not contravene the principle of double jeopardy.

What is meant by Cheque Bounce or a Dishonoured Cheque?

A cheque often serves as a written guarantee from the payer to the payee that a certain amount of money will be sent. In the hope that the payer's bank will properly transfer the funds, the payee, also known as the drawee, deposits this cheque in their account. A & quot dishonoured cheque& quot is what is known as when the bank of the payer or the bank of the payee, refuses to uphold this pledge.

Insufficient money in the issuer's account, inconsistencies in the signature on the cheque, mismatched account numbers or if the cheque is defaced or damaged are just a few of the reasons why a cheque could be dishonoured. Additionally, if the card is expired, there are problems with the date of issuance, or the issuer decides to cancel the payment, it may bounce. A bank may dishonour a cheque for a number of other factors.

How do you come to know that the cheque is bounced?

When the Drawee Bank decides that it cannot honour the amount of the Cheque payable to the Payee for any reason, it swiftly issues a & quot Cheque Return Memo& quot to the Payee's bank, outlining the reasons why the Cheque cannot be honoured. The dishonoured Cheque and the memo are then given to the Payee by the Payee's bank.

Cheque Bounce Charges

When a bank refuses to accept a cheque provided as payment for a transaction, the terms & quot dishonoured cheque& quot or & quot cheque bounce& quot are used. In addition, the bank charges customers whose cheques are returned unpaid a penalty Resubmission of the dishonoured Cheque: The resubmission of a dishonoured cheque can be made by a payee or the person holding the cheque, as long as it is done within 3 (three) months of the date specified on the cheque. In order to ensure that payment is received, it is necessary for the payee to present all relevant documents at the time of resubmitting the cheque.

If, however, despite taking all necessary steps in this regard, the drawer still fails to make payment and the cheque is found to be dishonoured again, then legal action can be taken against such drawer.In such cases, a criminal complaint could be registered against them with local law enforcement authorities and they may face deep legal complications which could result in prosecution and conviction too.

It is worth mentioning that when an individual or entity decides to proceed with a case involving dishonoured cheques, it is important for them to gather all evidence needed to support their claims of payments being due and owing by proving delivery or acceptance of services rendered or products sold by one party against another. The courts often require valid proof of transactions before proceeding with applicable orders and judgments in favour of claimant parties in cheques-related disputes.

What are the reasons for a Cheque Bounce?

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 o ccurs :

1. The signature is not matching

2. There is overwriting in the cheque

3. The cheque was presented after a lapse of three months, i.e. after the cheque has expired

4. Account was closed

5. Insufficient funds in the account

6. Payment stopped by the account holder

7. Opening balance insufficient

8. The disparity in words and figures mentioned on the cheque

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

10. Mismatch in the account number

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

12. Death of the customer

13. Insolvency of the customer

14. Insanity of the customer

15. Crossed cheque

16. When a cheque is issued against the rules of the trust

17. Alteration in cheque

18. Doubt in the genuineness of the cheque

19. Presented at the wrong branch

20. Crossing the limit of overdraft (OD)

What are the consequences of a Cheque Bounce?

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

1. Bank Penalty: If a cheque bounce takes place due to insufficient funds or a signature mismatch or any of the other technical reasons 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 the 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.

2. 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 get dishonoured and must keep at least some thousands more than the minimum balance in the account even after the cheque has been encashed.

3. 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 dishonoured, 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.

4. Other Risks: According to the RBI guidelines, the banks can prohibit the issuance of chequebooks 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.

What is the procedure or process for filing a Cheque Bounce case in India?

Contacting a lawyer with experience in Negotiable Instrument issues is the first thing you should do if your cheque bounced.

• Step 1: Sending a Demand Notice to the person who issued the bounced cheque is the first step.

• Step 2: Included in this notice should be all pertinent information about the bounced cheque, such as the date it was issued and a copy of the dishonoured memo.

• Step 3: Give the notice's recipient 15 days from the date of receipt to make the payment.

• Step 4: If there is a violation, proceed to register a complaint with the court using the format specified.

• Step 5: Include an oath letter, a copy of the notice that was issued and its acknowledgment receipt, a photocopy of the memo, and the bounced cheque that was received with the complaint form.

• Step 6: After receiving your complaint, the court will carefully analyse and confirm the information you have provided.

• Step 7: The party responsible is then ordered to appear in court once the complainant or their legal representatives complete the bhatta or cheques bounce case process form and the judge is satisfied with your cheque return case.

• Step 8: The judge has the power to issue a warrant with a bailable warrantvalue against the accused if they don't show up for court.

A cheque bounce in India is a criminal offense, which falls under the  Negotiable Instruments Act of 1881 . The payee can take the following action(s) if the cheque bounces:
 

Filing a case of Cheque Bounce

If a check bounces, the payee can resubmit it within three months if they know that the cheque will not be dishonoured the next time. Another way to do this is to send the defaulter a legal notice within 30 days after receiving the return memo. This can be done with the assistance of a cheque bounce lawyer . The notice should include all relevant facts, such as the type of transaction, the amount, the date the instrument was deposited in the bank and the date the cheque was dishonored on. 

The payee can file a criminal case under Section 138 (Negotiable Instruments Act of 1881) if no action is taken and the new cheque or repayment has not been made within 30 days after receiving the notice. The complaint must be filed in a magistrate court within one month after the notice period has expired.

The court will summon the complainant and hear the case after receiving an affidavit, as well as any relevant documents. The defaulter may be punished by a two-year prison sentence and/or an up to double the amount of the cheque as a fine if found guilty. The defaulter may appeal the decision of the lower court to the session court within a month. A settlement outside of court can be sought at any time if a lengthy legal battle is not acceptable for both parties.
 

Filing a civil suit:

If the amount due is not recovered during the lengthy legal battle, you can file a separate civil lawsuit with the assistance of a cheque bounce lawyer to recover the money and cover the costs that the petitioner incurred during the legal battle. In this case, a summary action under Order 37 of the Code of Civil Procedure,1908  is filed. Summary suits are different from ordinary suits in that the accused does not have the right to defend themselves. The defendant must instead obtain permission from the court in order to do so. Summary suits are only available in cases of recovery, whether it is for promissory note, bill of exchange or cheques.
 

What are the essential documents for a Cheque Bounce Case in India?

Certain documents for filing a complaint for cheque bounce have been stated below: 1. The original cheque. 2. Memo of returning cheque which would contain the reason for non-payment by the bank. 3. Copy of the demand notice and the original receipts. 4. An affidavit stating pieces of evidence.

What is the punishment in a Cheque Bounce case in India?

Section 138 of the Negotiable Instruments Act 1881 is the main provision dealing with cheque bounces in India. The Act states that cheque bounce is a criminal offence and is punishable with imprisonment of two years or with a fine equal to twice the amount on the cheque, or both. Section 141 of the NI Act states that if an offence under Section 138 is committed by a company, then every individual involved in the discharge of liability will be responsible for the offence of cheque bounce.

How to defend a Cheque Bounce case in India?

If you are facing a cheque bounce case in India, you can defend yourself by taking the following steps:

1. Check if the cheque is valid: Ensure that the cheque is not post-dated, is signed, and is not stale. A stale cheque is one that is presented for payment after three months of its issue date.

2. Verify the details: Check the details such as the amount, date, and payee name on the cheque to ensure they are correct.

3. Review the reason for the bounce: The bank returns the cheque with a memo indicating the reason for the bounce. Verify the reason provided by the bank and check if it is valid.

4. Respond to the legal notice: If you receive a legal notice from the complainant or their lawyer, respond to it within 15 days. Failure to do so may result in a court case being filed against you.

5. File a reply in court: If the complainant files a case against you, hire a lawyer and file a reply in court. In your reply, explain the reason for the cheque bounce and provide any evidence to support your claim.

6. Attend the court hearings: Attend all the court hearings related to the case and provide any additional information as required by the court.

7. Attempt to settle out of court: You can also try to settle the matter out of court by negotiating with the complainant and offering to pay the amount due. If the complainant agrees to settle, you can request them to withdraw the case filed against you.

It is important to note that cheque bouncing is a criminal offence in India, and if found guilty, the accused can be fined or imprisoned. Therefore, it is crucial to take the matter seriously and defend yourself with the help of a lawyer.

Why is it Important to Hire a Lawyer in a Cheque Bounce case?

As stated above, cheque bounces can attract possible criminal charges. Hiring a cheque bounce lawyer to file or 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. You can also use LawRato's Free Legal Advice service to get free advice on your legal issue from expert cheque bounce lawyers.
 

Dos and Don'ts of a Cheque Bounce case in India

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 dishonour of cheque:

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

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

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

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

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

6. 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.

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

How to Avoid Cheque Bounce

Here are some things to remember if you have to write a cheque:

• Assuring Sufficient Funds: It is essential for the issuer to confirm that there are enough funds in their bank account before writing a cheque.

• Accuracy of Information: The issuer is required to provide accurate information, including the proper date, exact amount, and payee name on the cheque.

• Avoiding Post-Dated Cheques: Since this practice increases the likelihood that a cheque will bounce, issuers should avoid issuing post-dated cheques.

• Verification of Signature and Date: In order to confirm the authenticity of the cheque, the recipient must carefully examine both the signature and the date.

• Use account payee cheques: Using an account payee check is a wise choice because it allows the specified payee to be the only one who can cash it, preventing any potential misuse.

• Be careful when filling out the cheque: To avoid any unintentional mistakes, carefully fill in all the information on the cheque, including the payee's name and account number.

Landmark Judgements for Cheque Bounce case in India

1. Dashrath Rupsingh Rathod vs. the State of Maharashtra It was held by the three-judge Supreme Court Bench that the complaint regarding the dishonour of cheques can be filed only to the Courts within whose local jurisdiction the offence has been committed.

2. Krishna Janardhan Bhat vs. Dattatraya G. Hegde Necessary ingredients such as the existence of the legally enforceable debt, the cheque supposed to be paid in the due course of fulfilling the liability and the issued cheque must be returned due to insufficiency of funds were listed in this Case.

3. Dashrathbhai Trikambhai Patel v. Hitesh Mahendrabhai Patel The appellant issued a statutory notice under Section 138 to the first respondent, alleging that the respondent borrowed Rs. 20 lakhs and issued a cheque for the same. The High Court acquitted the respondent. The Supreme Court clarified that the offence under Section 138 is committed even if the cheque does not represent an enforceable debt at the time of encashment.

What is the nature of a Cheque Bounce case in India - civil or criminal?

The aggrieved party has both criminal and civil remedies for tackling a cheque bounce case.

• Criminal remedy - A cheque bounce is a criminal offence in India under Section 138 of the Negotiable Instruments Act, 1881. When a cheque is dishonoured due to insufficient funds or any other reason, the complainant can file a criminal case against the person who issued the cheque. The complainant can file the case in a court of law within 30 days from the date of receiving the cheque bounce memo from the bank. If found guilty, the person who issued the cheque may be sentenced to imprisonment for a term that may extend to two years, or a fine that may extend to twice the amount of the cheque, or both.

• Civil remedy - In addition to criminal proceedings, the complainant can also initiate civil proceedings for recovery of the amount due under the cheque. However, civil proceedings cannot be initiated until the criminal proceedings are completed. If the complainant files a civil suit, they can seek recovery of the cheque amount, along with interest and legal costs.

What Happens if a Cheque Bounce Issue is not Resolved?

The financial world is plagued by many cases of cheque bounce. As per the Supreme Court of India, there are more than 40 lakh cases of cheque bounce pending in India. The payee and the receiver can both suffer from a cheque bounce. This could include a bank penalty, a negative impact on the CIBIL rating, or civil or criminal actions against the issuer. In addition, if the receiver does not take action against the payee within the time limit, the case of a cheque bounce can lead to the receiver having no recourse. It is therefore important to deal with a case of cheque bounce as quickly as possible to avoid the associated consequences. This complete guide on Indian Laws for cheque bounce will teach you what to do and what not to do in the event of a bounced cheque.

FAQs: Cheque Bounce Matters

Q. What is the jurisdiction of a bearer cheque? A. In the case of a bearer cheque, legal proceedings can be initiated under Section 138 of the Negotiable Instruments Act in the territorial jurisdiction of the Court where the bank receives the cheque for processing.

Q. Which court does a cheque bounce case go to? A. The jurisdiction for the complaint of cheque bounce/cheque dishonour lies with the Magistrate Court where the payee's or drawer's bank is situated based on the deposit or presentation of the cheque.

Q. Can Section 138 case be transferred from one state to another? A. Yes, Section 138 cases under the Negotiable Instruments Act, 1881, can be transferred between states, and the Supreme Court has the power to transfer such cases, considering the ends of justice. However, this transfer is not automatic and involves multiple factors.

Q. What is the territorial jurisdiction for a money suit? A. Territorial jurisdiction for a money suit lies with the court where the defendant resides, conducts business, or where the cause of action, wholly or partially, arises.

Q. Can I file a cheque bounce case in another state? A. Yes, you can file a cheque bounce case in another state. However, all cases filed under the Negotiable Instruments Act for cheque bounce can only be filed within the territorial jurisdiction of the courts where the drawee bank is located.

Q. Is a Cheque Bounce Case Civil or Criminal? A. It has both civil and criminal implications. Section 138 of the Negotiable Instruments Act treats it as a criminal offence, while civil remedies involve recovery of the amount due.

Q. Can police take action on a cheque bounce case? A. The police have a limited role in cheque bounce. Complaints are filed directly with the magistrate, but police intervene if non-bailable warrants are issued against the defendant to ensure their court appearance.

Q. What is Defence evidence in a cheque bounce case?
A. In the case of a cheque bounce, some of the primary defenses can be showing that the cheque was for security, disputing the signature, stopping payment orders, or proving the complainant's financial inability to lend. The accused can also argue that the statutory obligation of notice or limitation period has not been adhered to.

Q. What are the important documents in the case of Cheque Bounce?
A. Important documents in the case of Cheque Bounce include the original dishonoured cheque, a return memo from the bank indicating non-payment, copies of the legal notice, and an affidavit supporting the claim.

Q. Can a warrant be issued in a cheque bounce case?
A. Yes, in the case of a cheque bounce, a non-bailable warrant, as discussed earlier, can be issued by the Magistrate to ensure the appearance of the accused.

Q. How do you fight a cheque bounce case?
A. You can fight a cheque bounce by disputing the debt, showing security use of the cheque, and gathering key documents. Once the proceedings have been initiated or are about to be initiated, you should hire a specialized lawyer, attend court dates, and present evidence like bank statements.

Q. What is the maximum punishment for a cheque bounce case?
A. A bounced cheque under Section 138 can lead to a maximum penalty of two years imprisonment or a fine up to twice the cheque amount.

Q. What happens if a complainant does not attend court?
A. If a complainant does not attend court, the court might grant adjournments, dismiss the case due to repeated absences affecting proceedings, issue summons or a warrant for the complainant, drop their testimony, or in some instances, acquit the accused due to the complainant's absence.

Q. Can I get bail in a cheque bounce case?
A. Yes, bail can be obtainable in a cheque bounce case, considering it is a bailable offence. If warrants have been issued, appearing in court, and applying for regular bail is necessary. The court assesses your case circumstances and may request a surety bond or bail bond for your release, along with a specified deposit for attendance assurance during court hearings.

Advocate Chikirsha Mohanty

4.0 | 2+ user ratings Greater Kailash - 1, Delhi
5 years

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