Check bounce means the dishonoring of a cheque issued in the name of the drawee mostly due to insufficient funds. Negotiable Instruments Act, of 1881 (Act) mainly focuses on ensuring the legitimacy of the negotiable instruments and enforcing the promise so made using these negotiable instruments.
Various Laws related to Cheque Bounce in India make cheque bounce a punishable offense with a fine amounting to double the amount enclosed in a cheque and or imprisonment for a term not exceeding more than two years. Apart from insufficiency of funds, a cheque may bounce due to several reasons like expiry of the cheque, overwriting, image, signature miss match, etc., but the Act only covers cheque bounce due to insufficiency of funds as to be stated in the banker’s memo. A suit for recovery of money payable through a negotiable instrument can be filed as a civil or criminal suit.
Cheque Bounce Case Procedure
The following is the procedure for a legal case for a cheque bounce in India:
- In an event of a cheque bounce being noted to the drawee, the drawee would have to request the bank for a banker’s memo which states the reasons for the same.
- The drawer is eligible to reissue a cheque for the said amount within three months of the date of issue if he is confident that the cheque would not be dishonored due to insufficiency of funds again. This procedure would be an acknowledgment of repayment of the said amount, provided that a fresh negotiable instrument is executed.
- Or the drawee could also directly send a notice to the drawer within 30 days of the dishonor of the cheque to pay the said amount within 15 days of receipt of the notice failing which the drawee can file a criminal complaint under section 138 of the Act.
- The notice written to the drawer should contain the details of the drawer, the facts, and circumstances under which the cheque was to be issued, and the details of the cheque such as the cheque number, the bank, and the bank branch details. The notice should also contain details of the mode of repayment and the timeline for the repayment of the said amount. It is essential to maintain an office copy of the notice sent.
- An office copy of the notice means maintaining a copy of the notice before enclosing it and delivering it to the drawer. If the drawer fails to acknowledge the receipt of the notice or evades the notice the office copy serves as the best form of evidence in a court of law.
- On the non-payment of the said amount after 15 days of receipt of the notice, the drawee can file a criminal complaint with the magistrate within 30 days after the expiry of the 15-day notice period.
Filing of cheque bounce case
- The complaint can be filed before the magistrate within whose jurisdiction the cheque was drawn, where it was presented for payment, where the payment was to be done, where the cheque was dishonored or where the notice was served. If the complaint is filed outside the jurisdiction of the magistrate, the magistrate at the request of the parties may commit the case (transfer the case) to the appropriate jurisdiction.
- To file the complaint, it is required for the complainant to produce a memo of parties, the mandatory notice under section 138 of the Act, the copy of the complaint, the pre-summoning evidence by the way of an affidavit, a list of witnesses, the list of relevant documents and supporting documents along with the vakalatnama in four of the council.
- On the receipt of the complaint, the magistrate will record the statement of the complainant to determine the merits of the case. If the magistrate is satisfied and sees that there are enough grounds to entertain the complaint, he will issue a summon for the appearance of the drawer to the court.
- On the date of the appearance of the accused the magistrate will ask if the accused pleads guilty.
- If the accused pleads not guilty, the accused will be asked to produce their arguments and evidence supporting his case.
- If the court finds the accused guilty the accused will be liable to pay compensation up to double the amount payable to the complainant and or may also be sentenced to imprisonment of up to a year.
Filing a Cheque Bounce case - Civil
A civil suit can be filed for cheque bounce cases, but such a case will not be filed under section 138 of the Act. The suit will be filed as per the Civil Procedure Code, 1908 (CPC). A civil suit under the CPC can be filed only for recovery of the amount payable and does not include any additional compensation or imprisonment of the drawer. The suit is filed by the plaintiff along with a plaint containing facts of the case, a vakalatnama authorizing the plaintiff’s representation, and paying the court fees and stamp duty. Following this, the court provides a date for the hearing based on which the defendant is directed to file the written statement following which the court proceedings are initiated.
Who can send a notice under Section 138 of the NI Act?
Under section 138 of the NI Act, only the payee can issue the notice to the defaulting drawer.
How to know if a cheque presented for payment is bounced?
If the drawee bank is unable to pay the check amount to the payee due to any reason, it issues a 'Cheque Return Memo' to the banker of the payee stating the reason for non-payment. The payee's banker then presents the dishonored check and the memo to the payee. The check is considered bounced when the payee receives the check return memo and dishonored check.
If a complaint is filed for the dishonor of a check, can the drawer get bail?
Yes, since the dishonor of a cheque is a bailable offense under Section 138 of the NI Act.
What are the reasons for cheque bounces in India?
There are several reasons for cheque bounce and the most common of them are lack of funds, inactive account, or wrong information in the cheque.
Can the drawer honor the check again after it has been dishonored?
If the check is dishonored, the drawer will be given a chance to honor the same check by writing a notice that they must immediately repay the check amount. The drawer will receive a notice 15 days before the change takes effect. If the drawer pays the entire amount within the 15-day notice period, no offense will be committed.
What is the validity of the bounced cheque?
The validity of any check is only 3 months from the date of issue, according to the NI Act. However, if the check bounces, one must file the case within the stipulated time, which is approximately 75 days from the date of dishonoring the check.
Author Bio: Adv. Ramit Sehrawat
He is a practicing lawyer at Delhi High Court, with 16+ years of experience. He is a consultant and practices in the area of Criminal matters, Cheque Bounce Matters, Divorce Matters, Family Matters, Property Matters, Recovery Matters, Child Custody Matters, and drafting and vetting of various agreements and documents. He is a passionate Counsel providing services in Litigation and Legal Compliance/Advisory to his clients in diverse areas of law.