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Consequences of Cheque Bounce Notice

Updated on:  

08 min read

A cheque bounce is an offence under Section 138 of the Negotiable Instruments Act, 1881 (“Act”) punishable with a fine which can extend to twice the amount of the cheque or imprisonment for a term not more than two years or both. When the payee presents a cheque to the bank for payment, and the cheque is returned unpaid by the bank with a memo of insufficient funds, then the cheque is said to have bounced.

A cheque bounce can occur due to several reasons, but if a cheque bounces due to insufficient funds in the drawer’s account, it amounts to an offence under the Act. The bank must reject the cheque presented for payment with a return memo stating the reason as insufficient funds. In such a case, the payee of the cheque can issue a cheque bounce notice to the drawer demanding to pay the cheque amount.

Circumstances of Cheque Bounce

The various situations that result in cheque bounce are as follows:

  • Insufficient account balance – If there is not enough balance in the drawer’s account to make the payment of the cheque, the bank will reject and return the cheque to the payee with a memo stating insufficient funds to pay the cheque amount.
  • Expired validity of cheque – Once the drawer issues the cheque, it must be presented for payment within three months. If it is not presented to the bank within three months, the cheque expires. If the expired cheque is presented to the bank, it bounces.  
  • Overwriting – If the signature of the drawer or cheque amount or any other statement has been overwritten on the cheque, then the cheque bounces for overwriting.
  • Damaged cheque – If a cheque is damaged or disfigured and the details are not visible or have marks or stains, the cheque will bounce.
  • Signature mismatch – If the drawer’s signature is unclear or absent or does not match the one in the bank’s data, then the cheque will bounce.
  • Mismatch of amounts or digits – If the cheque amount mentioned in words and figures does not match, then the cheque will bounce.

Remedies Against Cheque Bounce

Resubmission of cheque 

When the cheque bounces due to overwriting, mismatch of signature, mismatch of the figures and words of the cheque amount or damaged cheque, the payee can ask the drawer to submit another cheque rectifying the mistake. If the drawer does not agree to submit another cheque, then the payee can initiate civil action against the drawer to pay the cheque amount due to him and not for cheque bounce.

Cheque Bounce Notice under Section 138 of the Negotiable Instruments Act

A cheque bounce notice is issued under Section 138 of the Negotiable Instruments Act when a cheque bounces due to insufficient funds in the drawers’ account for making the payment of the cheque amount. If the cheque bounces for any other reason other than insufficient funds, the cheque bounce notice cannot be issued, and the payee can demand resubmission of the cheque. 

Issuance of Cheque Bounce Notice

When the cheque bounces due to an insufficient amount, the first step is to demand the payment of the amount by issuing a cheque bounce notice in writing by post under the Negotiable Instruments Act. The payee can issue a cheque bounce notice within 30 days of an intimation sent by the bank along with the bounced cheque stating that the bank cannot make the cheque payment due to an insufficient amount. 

After issuance of the cheque bounce notice, the payee must give the drawer 15 days time period from the receipt of the cheque bounce notice to pay the cheque amount. If the drawer does not pay the cheque amount even after the expiry of 15 days time period, then legal action can be initiated by the payee against the drawer within 30 days of the expiry of 15 days. 

However, a cheque bounce notice cannot be issued if the cheque was issued as a donation, gift or any other obligation that is not legally enforceable. The cheque must be issued for the discharge of a legally enforceable liability or debt to constitute an offence under the Act.

Procedure to Follow After Issuance of a Cheque Bounce Notice

After the expiry of 15 days of issuing the cheque bounce notice, the payee can initiate legal action against the drawer. The payee should register a complaint under Section 138 of the Act. Under Section 138 of the Act, the offence of cheque bounce is a criminal offence for which the payee can initiate a criminal suit. The payee must file the complaint against cheque bounce before the Magistrate within 30 days of the expiry of 15 days of the issuance of the cheque bounce notice.

Jurisdiction of Magistrate for Filing Cheque Bounce Suit

The payee can file the complaint before the Magistrate in any of the following places: 

  • Where the cheque was drawn, 
  • Where the cheque was presented for payment, 
  • Where the payment had to be made,
  • Where the cheque is dishonoured, or 
  • Where the demand notice was served. 

The cheque bounce complaint has to be filed before the Metropolitan Magistrate if the suit for the cheque bounce falls in any of the metropolitan cities. If the suit for cheque bounce falls in any other cities, then the complaint must be filed before the Judicial Magistrate. 

Process of Cheque Bounce Suit

The process of a cheque bounce suit are as follows:

  • Filing a complaint before the Magistrate after the expiry of 15 days of receipt of cheque bounce notice by the drawer.
  • The payee/complainant has to appear before the court and provide the details of the case. If the Magistrate is satisfied with the complainant’s statement, he will issue summons to the drawer for appearing before the court.
  • The drawer will appear and accept or deny the facts stated by the complainant. If the drawer denies the complaint, then the court will proceed with the criminal trial of the case.
  • The drawer/accused will file his statement, evidence and arguments of both sides will be presented to the court.
  • If the court finds the drawer guilty of the offence of cheque bounce, the court will pass a judgement of conviction against the drawer for the offence of cheque bounce.

The punishment for cheque bounce is imprisonment for a term not more than two years or a fine that can extend to twice the amount of the cheque or both. 

A civil suit can also be instituted against the drawer for payment of the cheque amount. In the case of the institution of a civil suit, the payee cannot issue a cheque bounce notice. The payee can only issue legal notice for recovery of the amount.

The offence of cheque bounce under Section 138 of the Act provides criminal punishment for the reason of cheque bounce due to insufficient amount, whereas the civil suit for recovery does not punish the drawer and provides for only the recovery of the cheque bounce amount.

The cheque bounce notice can be issued against the company, and a criminal suit can be initiated against a company when the company issues the cheque, and it bounces due to an insufficient amount under Section 148 of the Act. When a criminal suit is initiated under Section 148 of the Act, the company and its directors will be punished for the offence of cheque bounce. 

However, if the drawer pays the cheque amount to the payee within 15 days of receipt of the cheque bounce notice, no office is committed by him, and legal action cannot be instituted against him for cheque bounce under section 138 of the Act.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice. It should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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