Cheques are quite popular for payment whether you use them as an individual or for business. Sometimes the cheques get bounced due to lack of funds or different reasons. It can create a problem for both the paying bank and the receiver bank. Also to some extent, it creates problems for the payee and the drawer of the cheque. This blog discusses in-depth how to deal with Cheque Bounce Charges.
In Layman’s terms, the disowner of the cheque is quoted as bouncing the cheque. The bouncing and several other things related to the cheque are governed by the Negotiable Instrument Act, of 1881. The person who writes the cheque is the drawer. The entity or individual to whom the payment is intended is the payee. The bank responsible for making the payment is the drawee bank.
In the Negotiable Instrument Act, 1881 Section 138 deals with the case of dishonor of cheque. Section 138 of the Negotiable Instruments Act, 1881 is the primary provision that deals with the offense of dishonor of a cheque for insufficiency of funds. Also, if it exceeds the amount arranged to be paid by the drawer’s account. This section was amended several times to make it more effective and stringent in dealing with the issue of dishonored cheques.
Important Amendments
Over the years, various amendments have been made to the Negotiable Instruments Act. That streamlines and expedites the resolution of cheque bounce cases. Some crucial amendments include:
Introduction of Section 142A: This section provides for a mandatory provision of filing a complaint within one month from the date of receipt of a bank memo stating the return of the cheque as unpaid.
Jurisdiction of Filing Complaint: The jurisdiction for filing a complaint under Section 138 is determined by the place where the cheque was dishonored.
Addition of Section 143A and 148: These sections introduced to allow interim compensation and penal interest to the payee while the case is pending.
Key Elements of Section 138
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Cheque drawn by the drawer:
Section 138 applies when a person draws a cheque on an account maintained by them with a banker for payment of a certain amount of money.
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Presenting the cheque:
The payee or holder of the dishonored cheque must present it to the bank within six months from the date on which it is drawn or within the period of its validity, whichever is earlier.
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Cheque dishonored:
If the cheque dishonored due to insufficient funds or if it exceeds the amount arranged to be paid by the drawer’s account, the payee can take legal action.
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Notice to the drawer:
Within 30 days of the dishonor, the payee must issue a legal notice to the drawer demanding payment of the cheque amount.
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Drawer’s failure to pay:
If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a criminal complaint under Section 138.
Legal Framework for Cheque Bounce Charges
In India, the Negotiable Instruments Act, of 1881, governs the use of negotiable instruments, including cheques. Section 138 of the Act specifically deals with the offense of dishonor of a cheque due to insufficient funds or other reasons.
Under Section 138, if a cheque bounces, the payee has the right to initiate legal proceedings against the drawer (the person who wrote the cheque). By sending a legal notice, the payee demands the payment of the amount mentioned in the cheque within 15 days of receiving the notice. If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a criminal complaint against the drawer.
The legal consequences of a cheque bounce under Section 138 can include imprisonment for the drawer for a term that may extend to two years or with a fine that may extend to twice the amount of the cheque or with both. Additionally, the drawer may be liable to pay compensation to the payee.
Remedies for Cheque Bounce Charges
Dealing with cheque bounce charges, the payee can pursue several remedies to recover the amount mentioned in the bounced cheque.
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Issuing a Legal Notice:
The first step in dealing with a bounced cheque is to issue a legal notice to the drawer, demanding payment of the cheque amount within 15 days of receiving the notice. The legal notice should clearly state the consequences of non-payment, including the initiation of criminal proceedings.
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Filing a Criminal Complaint:
If the drawer does not make the payment within the stipulated 15-day period after receiving the legal notice, the payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act.
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Attending Court Proceedings:
If a criminal complaint filed, then both the payee and the drawer need to attend court proceedings. If the court finds the drawer guilty, it may impose penalties, including imprisonment and compensation to the payee.
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Filing a Civil Suit:
In addition to criminal proceedings, the payee can file a civil suit for the recovery of the cheque amount. A civil suit allows the payee to seek a decree from the court. It can be used to recover the amount via various means. Such as the attachment of the drawer’s property.
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Negotiation and Settlement:
In some cases, the payee and the drawer may agree to settle the matter out of court by negotiating a payment plan or a compromise. This can be a faster and less adversarial way to resolve the issue.
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Reporting to Credit Bureaus:
If the drawer is a repeat offender or refuses to make payment even after legal action, the payee can report the bounced cheque to credit bureaus. This can negatively impact the drawer’s credit score and financial reputation.
End Notes!
Dealing with cheque bounce charges can be a complex and contentious issue, often requiring legal intervention. The Negotiable Instruments Act, of 1881, provides a robust legal framework to address such situations. It offers rights and remedies to various stakeholders, including the payee, drawer, drawee bank, and third parties. Meanwhile, individuals and businesses need to understand these rights and remedies. So that it can protect their interests and seek redress in case of cheque dishonor.
In India, the bouncing of a cheque can hurt an individual’s Credit Information Bureau India Limited (CIBIL) score. CIBIL is a crucial factor in assessing a person’s creditworthiness. When a cheque bounces due to insufficient funds in the issuer’s bank account, it signifies a failure to meet a financial obligation. Consequently, it can result in a lower CIBIL score for the individual.
Recent amendments to the Act, such as the introduction of Sections 143A and 148, have further strengthened the rights of the payee. It allows for interim compensation and penal interest. All parties involved in cheque bounce cases need to be aware of their rights and responsibilities. Additionally, consulting legal experts and staying informed about relevant case laws is crucial. It helps you in navigating the complexities of cheque bounce charges.
