Consequences of Cheque Bounce Notice

When you give a cheque to someone without sufficient amount in your account, a cheque bounce case takes place. In such a case, you (drawer of cheque) may have to face legal action and receive a cheque bounce notice from the payee (the person to whom money is to be paid). Find out more about: 

• Cheque bounce meaning
• Reasons for cheque bounce 
• Cheque bounce notice issuance rules
• Cheque bounce case process and punishment

What is a Cheque Bounce?

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 (“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. 

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.

New Cheque Bounce Rule

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.

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 National Automated Clearing House (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.

Reasons For 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. The cheque expires if it is not presented to the bank within three months. If the expired cheque is given 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, 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, the cheque will bounce.
• Mismatch of amounts or digits – If the cheque amount mentioned in words and figures does not match, 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 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.

Cheque Bounce Notice

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. 

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 as per the 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.

Reply For Cheque Bounce Notice

The drawer must reply to the legal notice issued by the payee to avoid any further legal proceedings. But before replying, it is better to 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 to mention the following subjects in the reply:

• Address the reply of the legal notice to the lawyer of the drawee.
• Drawer's description, name, and address.
• Facts of the issue: date of issue, cheque-return memo, etc.
• Rebuttal of the allegations made against drawer.
• Refrain from admitting to any allegation against the drawer mentioned in the notice.
• Any complaints against the drawee of the cheque.
• A summary of the defence against the allegations mentioned in the legal notice for cheque bounce.
• The reply to any legal notice must be sent on a lawyer’s letterhead.

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.

How to Handle a Cheque Bounce Case?

 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.

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.
• Where the demand notice was served. 

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.

Process of Cheque Bounce Case

The process of a cheque bounce suit is 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 case details. If the Magistrate is satisfied with the complainant’s statement, he will issue a 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 refuses the complaint, then the court will proceed with the criminal trial of the case.
• The drawer/accused will file his statement, and 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.

Punishment For Cheque Bounce Case

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.

Cheque Bounce Charges

Banks usually levy penalties when a cheque is dishonoured due to insufficient funds or other reasons. These charges are known as cheque bounce charges or fees, which range from Rs. 100 to Rs. 750, depending on the bank and the amount involved. Banks can charge both the drawer and the payee with a cheque bounce fee. Additionally, they may also have to incur legal fees if a cheque bounce case is filed before a court.

Thus, when a cheque is presented for payment and is returned due to insufficient funds or for other reasons, the payee must inform the same to the drawer. The drawer must take immediate actions to make the payment by either resubmitting the cheque in case of any mistakes or arranging for the cheque amount in case of insufficient funds in the account. If the cheque bounces due to insufficient funds, the payee may send a legal notice and even file a criminal case against the drawer to recover the amount.

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.

Related Articles:
1. Dishonoured Cheque
2. Cheque Bounce Notice Format