Cheque Bounce

Cheque Bounce Law in India

In India, cheque bounce or dishonor of cheque is one of the most common financial offences that can have disastrous consequences for the issuer as it is a punishable offence under the Negotiable Instruments Act, 1881. As an outcome of cheque bounce in India, a cheque bounce case under Section 138 of the Negotiable Instrument Act, 1881, puts an individual at risk if the cheque issued by him/her is disohnoured because of the following reasons:
 

• Insufficiency of funds in the account;

• The sum mentioned in the cheque exceeds the amount arranged to be paid from that account by an agreement made with that bank.
   

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What is Cheque Bounce?

A bounced cheque simply refers to a cheque that the bank refuses to pass or honor. The receiver and the issuer are charged with a nominal penalty when the cheque is bounced. A bounced cheque also invites legal action if the receiver wishes to, and there have been cases where dishonor of cheque of significant amounts has invited criminal charges as well.
 

What are the reasons for Cheque Bounce in India?

The following are the reasons for cheque bounce:

1. Signature is not matching

2. There is overwriting in the cheque

3. Cheque was presented after 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. Disparity in the words and figures mentioned on the cheque

9. Mismatch in account number

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

11. Insolvency of the customer

12. Crossed cheque

13. Alteration in cheque

14. Doubt in genuineness of the cheque

15. Crossing limit of overdraft (OD)
     

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Legal Action in a Cheque Bounce case

In case of cheque bounce, the following legal actions can be taken by the payee of a cheque:
 

1. 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 to file a cheque bounce case 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 (bank memo, copy of legal notice, acknowledgment, etc.) 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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2. 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 of the amount which would include 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.
 

Time Limitations in a Cheque Bounce case

In case you are filing a case under section 138 of the Negotiable Instruments Act, it is very important to follow the time limitations prescribed under the Act. This is because a case for cheque bounce under the NI Act is bound by limitation and if an action is not taken within the prescribed time period without a reasonable cause you might lose your right to file a cheque bounce case.
 

Punishment for Cheque Bounce

The punishment for cheque bounce under the Negotiable Instruments Act is-

• Imprisonment for up to 1 year;

• Fine which may be equal to twice the amount of cheque, or both.
   

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How can you get bail in a Cheque Bounce case?

When you are charged under a cheque bounce case and warrants have been issued against you, you will have to appear in the court and apply for regular bail. The court after considering the circumstances of your case will grant you bail and would also ask you to either furnish surety bond or regular bail bond. The amount of the bond will depend upon the disputed amount. In case warrants haven’t been issued in your case and you are anticipating an arrest, you can apply for anticipatory bail. It is advisable to take the help of an expert cheque bounce lawyer to guide you with bail procedures.
 

Bank penalty for Cheque Bounce

When a cheque bounces, the banks charge a penalty. Both the defaulter and the payee could be charged by their respective banks. The fee would depend upon the bank in which the defaulter and the payee would be holding accounts (such as SBI, HDFC, ICICI, etc.). This fee is generally an NSF fee i.e. when there are insufficient funds in the account and the bank decides to bounce the cheque. Not all banks charge the same amount, the fee varies from one bank to another. The amount of this fee depends upon the reasons and nature of cheque bounce along with the type of account.
 

How to defend yourself in a Cheque Bounce case?

In certain business transactions, cheques are used as a method for the payment of money or as a security. However, there have been instances where after the completion of the business transaction, the person tries to fraudulently encash the cheque and subsequently files a false complaint in the court. Hence, the manner to defend a frivolous cheque bounce case is to show that there was no legal debt subsisting at the time the cheque was issued. Hence, with the help of your cheque bounce lawyer, you will have to show that the cheque was given as a way of security and no debt existed at that point in time.

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Why do you need a lawyer in Cheque Bounce?

Cheque bounce, though one of the most common offences in India, is still a serious issue to deal with as it may involve potential jail time for the issuer. Thus, it is of utmost importance to have a lawyer by your side when filing a cheque bounce case. An experienced cheque bounce lawyer can draft the legal notice and complaint on your behalf and can also prepare you for cross-examinations. A cheque bounce attorney, owing to his years of experience, can guide you through your legal journey and can help you understand the technicalities of the court procedure. He can ensure that the possibilities of you receiving the desired result in your cheque bounce case is more.