Updated on: Apr 25th, 2022
15 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, the cheque is said to have bounced.
A cheque bounce can occur for 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.
According to a notice issued by the Reserve Bank of India (RBI) in early August of 2021, customers whose financial activities revolve heavily around cheques or those who even plan to use cheques will have to ensure a minimum bank balance. If this minimum balance is not maintained, the cheque will bounce. In addition to this, the customer who issued the cheque may also have to pay a penalty fee. Along with these changes, the RBI announced that the National Automated Clearing House (NACH) would be operational 24 hours a day.
These changes apply to all national and private banks. The rule change was brought in to make clearing the cheques a faster and generally smoother one. Since the new rule ensures that NACH will be operational on all days of the week, Sundays will also be a day on which the entity can process and clear a cheque.
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 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 under the Negotiable Instruments Act. The payee can issue a cheque bounce notice within 30 days of an intimation sent by the bank and the bounced cheque stating that the bank cannot make the cheque payment due to an insufficient amount.
After issuing 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 reimburse the cheque amount even after the expiry of 15 days, 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 to discharge a legally enforceable liability or debt to constitute an offence under the Act.
To know the format of a cheque bounce notice, click here.
After 15 days of issuing the cheque bounce notice after the expiry, 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 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:
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 to pay 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 cheque bounce due to insufficient amount. In contrast, 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. 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.
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.
The first step would be to reply to the legal notice for your defence or pay the cheque amount to avoid any further legal proceedings. But before replying, you must consult a legal practitioner who is an expert in cheque bounce. If the cheque amount is paid at the starting stage, the matter will be resolved then and there.
The reply for the legal notice does not possess any specific format but make sure that you mention the following subjects in the reply:
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 you.
Cheque bounce penalty charges vary from bank to bank ranging from Rs 50 to Rs 750.
Yes, you can file an FIR against the person who has issued a cheque. A person can then file a case against the issuer of the cheque under Section 420 or 406 of the Indian Penal Code (IPC) in a criminal court. Alternatively, the payee can directly file a complaint before the Magistrate under Section 138 of the Negotiable Instruments Act, 1881 for a cheque bounce case after issuing a cheque bounce notice.
Yes. When a cheque is bounced for insufficient funds in the bank account, it is a criminal offence. The payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act, 1881. When a criminal complaint is filed, the issuer of the cheque can be imprisoned.
Yes, you can be arrested if the cheque issued by you bounces for the reason of insufficient funds in the account since it is a criminal offence. The punishment of imprisonment is provided to ensure that unscrupulous people do not fool innocent people in regard to payments and that they do not escape or flee away from the country. However, it is a bailable offence. Thus, you can get bail if you assure your presence in court when demanded.
The bail amount for a cheque bounce case varies on a case-to-case basis. Certain parameters affect the bail amount, such as the amount for which the cheque was issued, the number of similar cases pending against the drawer in the same transaction, the financial status of the drawer, etc.
When a cheque is dishonoured, the bank issues a memo to the issuer of the cheque containing the reason for the dishonour, date of cheque bounce, cheque number and date of issue of the cheque. This memo is called a cheque return memo and is an essential document to issue a cheque bounce notice. The payee can issue a cheque bounce notice based on the cheque return memo issued by the bank.
The documents required to file a cheque bounce case in India are:
Yes, there can be civil and criminal proceedings against the issuer in case of cheque bounce. The civil proceedings can be instituted under Section 138 of the Negotiable Instruments Act, or criminal proceedings can be initiated by filing a complaint before the Magistrate.
Yes, you can send back the cheque to the bank even if it has bounced once. Dishonour of a cheque once or twice does not curtail your right to send the cheque to the bank for payment. There is no restriction regarding the number of times a cheque can be presented. However, when you present the cheque and it is dishonoured again, it will give rise to an additional cause of action for filing a complaint under Section 138 of the Negotiable Instruments Act, 1881.
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