What does the term “cheque bounce” mean?
Cheque bounce is one of the most common financial offences in India that can lead to
disastrous consequences for the issuer. The author of the cheque is called ‘drawer’,
the person in whose favour, the cheque is drawn is called ‘payee’, and the bank who
is directed to pay the amount is known as ‘drawee’.
If a cheque is dishonoured
A cheque bounces or is considered to be dishonored when a cheque is returned by the
banker of the drawer. When a cheque is dishonoured, the drawee bank issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The payee’s banker then gives the dishonoured cheque in original and the memo to the payee.
The holder or payee can resubmit the cheque within three months of the date on it, if he believes it will be honoured the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally.
The payee may legally sue the defaulter / drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability
of the defaulter towards payee.
If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases.
Legal action in a cheque bounce case
Section 138 of the Negotiable Instruments Act casts criminal liability punishable with
imprisonment of sentence or fine and with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonored by the bank on presentation.
Thus, under the provisions of Section 138, any person who issues a cheque for the
discharge of liability and the said cheque is dishonored, becomes criminally liable, in the
event of payment of dishonoured cheque not made after notice of demand is given to him to make the payment within 15 days of the receipt of the said notice. If the person
committing an offence under Section 138 is a company, then vicarious liability is fastened on certain other persons as well.
Important points while initiating action under section 138 of the Negotiable Instruments Act
- a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability;
- that cheque has been presented to the bank within a period of three months from the date on which it is drawn of within the period of its validity whichever is earlier;
- that cheque is returned by the bank unpaid;
- the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
- the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;
If the drawer makes payment of the cheque amount within 15 days from the date of receipt of the notice, then drawer does not commit any offence. Otherwise, the payee may proceed to file a complaint in the court of the jurisdictional magistrate within one month from the date of expiry of 15 days prescribed in the notice.
Punishment in a Cheque Bounce Case
If found guilty the defaulter can be punished with imprisonment for (a term which may be extended to two years), or with fine which may extend to twice the amount of the cheque, or with both.
It is essential in this case to consult an advocate who is well versed and experienced
in this area of practice to proceed further in the matter.
- The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
- Easy Kanoon has the best lawyers to deal with cheque bounce cases in India. Email us at firstname.lastname@example.org