Introduction:
In the world of business and commerce, the use of cheques as a mode of payment is quite common. They are considered a reliable and convenient way to transfer funds. However, cheque dishonour, commonly known as cheque bounce, is uncommon. A returned unpaid cheque due to insufficient funds or other reasons can severely impact both the issuer and recipient. To address this issue and ensure trust in the system, the Indian legal framework includes provisions under Section 138 of the Negotiable Instruments Act (NIA) to deal with cheque dishonour and the issuance of a Cheque Bounce Notice.
Understanding Section 138 of the Negotiable Instruments Act:
Section 138 of the Negotiable Instruments Act of 1881 was introduced to instil confidence in the credibility of transactions involving negotiable instruments such as cheques. It provides legal recourse to the payee or the recipient of a dishonoured cheque to recover the due amount. The section criminalises issuing a cheque that bounces and prescribes penalties. The provision protects the payee’s rights and maintains the sanctity of commercial transactions.
For a case to be filed under Section 138 NIA, certain conditions must be met:
Issuance of a Cheque:
The first and foremost condition is that the drawer must have issued a cheque in favour of the payee to fulfil a legally enforceable debt or liability. The cheque must not be a gift or donation.
Issuing a cheque forms the foundational step in the process governed by Section 138 of the Negotiable Instruments Act. As a negotiable instrument, a cheque represents a promise of payment by the drawer to the payee. It is a written commitment to discharge a debt or meet a financial obligation. When the drawer hands a cheque to the payee, it legally binds to provide the specified amount upon presentation. Issuing establishes a contractual relationship, obligating the drawer to maintain sufficient funds for cheque honor. Issuing a cheque carries the responsibility of fulfilling the promise it embodies. Any failure to do so can lead to legal consequences, including initiating a Cheque Bounce Notice under Section 138 NIA if the bank dishonours the cheque.
Presentation of the Cheque:
The payee must have presented the cheque to the bank within the validity period, usually within three months from the date mentioned on the cheque.
Presentation of the cheque is a pivotal aspect of the process outlined in Section 138 of the Negotiable Instruments Act. After issuing a cheque, the drawer requires the payee to present it to the bank within three months. Presenting the cheque serves to show the payee’s intent, verify the drawer’s balance, and initiate fund transfer. Timely presentation is crucial for verifying the availability of funds and demonstrating the payee’s diligence in upholding their end of the transaction. Please present the cheque within the specified period to avoid it becoming stale and losing its legal enforceability. Handing the cheque promptly to the bank protects the payee’s right to claim while following negotiable instrument procedures.
Cheque Dishonour:
The bank dishonors the cheque due to insufficient funds, account closure, mismatched signatures, or grounds specified in the NIA.
The dishonour of cheques by the bank is a critical event that triggers the application of Section 138 of the Negotiable Instruments Act. When a cheque is presented for encashment, the bank verifies whether the drawer’s account holds sufficient funds to honour the payment. If, for any reason, the account does not contain the requisite funds, the bank returns the cheque as “dishonoured.” This dishonour indicates that the drawer still needs to fulfil its commitment, potentially due to insufficient funds, account closure, mismatched signatures, or other technical issues. The dishonour of a cheque underscores the breach of the contractual obligation to make the promised payment. It’s also the basis for the payee to start seeking legal remedies, including issuing a Cheque Bounce Notice, under Section 138 NIA.
Notice to the Drawer:
After receiving the dishonoured cheque from the bank, the payee must send a legal notice to the drawer within 30 days of receiving the dishonoured memo from the bank. The notice must demand the payment of the due amount within 15 days of receiving the notice.
Section 138 of the Negotiable Instruments Act outlines a crucial process, initiated by the payee.Upon bank dishonour, a formal Cheque Bounce Notice, sent within 30 days of dishonour memo receipt, offers a chance for the drawer to rectify. The notice communicates dishonoured cheque, demands payment within 15 days, and acts as a final opportunity to avoid legal action. It’s vital to craft a precise notice with payee details, cheque specifics, dishonour cause, due amount, and payment method. Clear, legally compliant notices set a firm foundation for potential legal actions under Section 138 NIA if payment doesn’t occur within the timeframe.
Failure to Make Payment:
Suppose the drawer fails to pay within 15 days of receiving the notice. In that case, the payee can file a complaint under Section 138 NIA within one month of the expiry of the notice period.
Specifying the payment method within the Cheque Bounce Notice is a significant aspect of the process governed by Section 138 of the Negotiable Instruments Act. In this notice, the payee delineates the preferred mode for the drawer to pay to rectify the dishonoured cheque.Options like direct bank transfers, new cheques, or demand drafts constitute the payment methods. Clarity prevents ambiguity. Specifying the method aligns expectations and ensures efficient resolution. Furthermore, this reinforces formality and underscores seriousness, prompting corrective action from the drawer.
Issuance of Cheque Bounce Notice:
The issuance of a Notice for Cheque Bounce is a crucial step in the process of seeking remedy under Section 138 NIA. The notice serves as a final opportunity for the drawer to make the payment and avoid legal consequences. The notice must be drafted carefully and must contain specific details to be legally valid:
Name and Address:
The payee’s name, address, and contact details should be mentioned in the notice.
Cheque Details:
The details of the dishonoured cheque, such as the cheque number, date of issue, and the bank’s name, must be included.
Reason for Dishonor:
The notice should mention the reason provided by the bank for dishonouring the cheque.
Demand for Payment:
The notice must demand the payment of the due amount within 15 days of receipt of the notice.
Method of Payment:
It is advisable to specify the mode of payment through which the drawer should make the payment.
Consequences of Non-Payment:
The notice must explicitly warn of Section 138 NIA action if payment isn’t made within the stipulated time.
Use a reliable method like registered post or email to prove delivery of the Cheque Bounce Notice.
Legal Recourse and Penalties:
Suppose the drawer fails to pay within 15 days of receiving the Cheque Bounce Notice. In that case, the payee can initiate legal proceedings under Section 138 NIA. The payee can file a complaint before the Magistrate within one month from the expiry of the notice period. The Magistrate may impose a penalty, which could be two times the cheque amount or imprisonment for a term extending to two years, or both.
Conclusion:
The provision of the Cheque Bounce Notice under Section 138 of the Negotiable Instruments Act plays a vital role in resolving disputes arising from dishonoured cheques. It emphasises the importance of fulfilling financial obligations and maintaining trust in commercial transactions. As a payee, you must grasp the legal prerequisites for issuing a Cheque Bounce Notice and follow the correct procedure to seek remedy for a dishonored cheque. Drawers must exercise caution when issuing cheques, ensuring ample funds to prevent legal consequences. In general, following the law and quickly resolving disputes can foster a dependable financial ecosystem for both businesses and individuals.
The Legal251 team of specialists will guide you through each step to ensure accurate and swift execution. Download our App Legal251 or visit our website, www.legal251.com or dial the toll-free number – (+91) 77728-77729.
