A cheque bounce notice is a legal intimation issued under Section 138 of the Negotiable Instruments Act when a cheque is dishonoured due to insufficient funds. It demands repayment of the exact cheque amount within 15 days. A cheque bounce notice is valid only if it states the exact cheque amount. Any error, however small, invalidates it.
Key Highlights
- The payee must issue the notice within 30 days of receiving the bank’s cheque return memo.
- The drawer gets 15 days from receipt of notice to clear the payment.
- Failure to pay allows the payee to file a criminal complaint under Section 138 NI Act.
- The offence is criminal in nature but the payee may also pursue a civil suit for recovery.
- Both the drawer and company directors (if a company issued the cheque) can be held liable.
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, the cheque is said to have bounced.
A cheque bounce is an offence under Section 138 of the Negotiable Instruments Act, 1881. The punishment can be:
Cheques may bounce for many reasons, but insufficient account balance is the most common and legally punishable cause. In such cases, the bank issues a return memo to the payee. The payee can then send a cheque bounce notice to the drawer, demanding payment of the cheque amount.
The various situations that result in cheque bounce are as follows:
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 to rectify the mistake.
If the drawer does not agree to submit another cheque, the payee can initiate civil action against the drawer to pay the cheque amount due to him and not the cheque bounce.
A cheque bounce notice is issued under Section 138 of the Negotiable Instruments Act only when a cheque bounces due to insufficient funds in the drawers’ account to make the cheque amount payment.
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.
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 as per the Act.
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 to discharge a legally enforceable liability or debt to constitute an offence under the Act.
The drawer may reply to a cheque bounce notice to avoid further legal proceedings. The reply should be drafted carefully, ideally with the help of a legal practitioner, and may include details of the transaction, objections to the claims, or proof of payment.
The drawer cannot argue that typographical mistakes in the notice should be ignored. Any mismatch between the cheque and the notice amount makes the notice itself invalid, leaving no room for such a defence.
The failure to reply to the legal notice or pay the cheque amount within 15 days can motivate the drawee to legally file a complaint at the court, which would initiate the legal proceedings against the drawer.
A reply to a cheque bounce notice has no prescribed format, but it should include the following details:
After the expiry of 15 days of issuing the cheque bounce notice, the payee can initiate legal action against the drawer if he/she does not receive the cheque payment. 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 the cheque bounce before the Magistrate within 30 days of the expiry of 15 days of issuing the cheque bounce notice.
The payee can file the complaint before the Magistrate in any of the following places:
The cheque bounce complaint has to be filed before the Metropolitan Magistrate if the cheque bounce suit falls in any metropolitan city. If the suit for cheque bounce falls in any other city, the complaint must be filed before the Judicial Magistrate.
The process of a cheque bounce suit is as follows:
Under Section 138 of the Negotiable Instruments Act, 1881, cheque bounce due to insufficient funds is a criminal offence. The punishment may include:
Apart from criminal proceedings, the payee may also file a civil suit to recover the cheque amount. However, in a civil suit, no cheque bounce notice is required. Only a legal notice for recovery is required. Civil action does not impose punishment; it ensures repayment only.
The cheque bounce notice can be issued against the company. A criminal suit can be initiated against a company when it issues the cheque and 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
If the drawer pays the cheque amount within 15 days of receiving the cheque bounce notice, no offence is deemed to have been committed under Section 138, and legal proceedings cannot continue.
Banks levy penalties when a cheque is dishonoured due to insufficient funds or other reasons. These cheque bounce charges usually range from Rs. 100 to Rs. 750, depending on the bank and the cheque amount. Charges may apply to both the drawer (issuer) and the payee (recipient). In addition, legal fees may arise if the matter proceeds to court.
When a cheque is returned unpaid, the payee should immediately inform the drawer. The drawer must then take corrective action, such as:
Cheque bounce is both a financial burden and a legal risk. Maintaining sufficient funds and ensuring accurate cheque details is the simplest way to avoid penalties, notices, and criminal proceedings.
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Related Articles:
1. Dishonoured Cheque
2. Cheque Bounce Notice Format