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Laws related to cheque bounce in India
Cheques are one of the usual ways of dealings in India. As cheques have documentary proof, most people are businessmen or others who find it easy and convenient to use them for the transaction. But sometimes the cheque gets bounced. There are many reasons for cheque bounce that causes havoc in the aftermath.
Cheques are familiar to all of us, but there are some laws for cheque bounce that we may need to become more familiar with, and we should know it. For better knowledge, we must understand courts' orders on cheque bounce cases in India. In this article, we will show insights into cheque bounces and the laws regarding the bounce of cheques in India.
Negotiable Instruments Act, 1881
Under Section 138 of the NI Act, the penalty for the cheque bounce is stated. It supplies the legal recourse to take things of bouncing a cheque. The main goal is to use cheques and boost the credibility of cheque dealings by making the crime. A violation executed as per Section 138 is a non-distinct crime. In this crime, one can get bail too.
A violation as per the section will be done with these elements:
Drawing of cheques by the debtor to remove debt.
Declaration of cheques within six months starting from the withdrawal date.
Statement of cheque and return due by their bank.
Statutory Notice within 30 days of passing of data from the bank about the return of the cheque as due to the debtor requesting payment of the amount of the cheque.
Failure to form payment by the drawer within 15 days from the date of receipt of Notice;
One found guilty can get a penalty as jail for two years or less or a fine that can be double the cheque amount.
Section 138 makes a statutory violation in dishonor cheques depending on inadequate funds in the debtor's account. It surpasses the amount agreed to be paid from that account by an accord made after the bank, as noted in the NI act.
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Criminal Procedure Code, 1973
The Criminal Procedure Code, 1973 states that: The trials may occur in the case of a cheque bounce under sections 262 to 265 of the CrPC, 1973. The offense can be punishable with a sentence to jail with a maximum period of 1 year and a fine with a maximum of Rs. 5000.
The Civil Procedure Code, 1908
One of the convenient ways is to file a civil suit. The drawee can file a civil case to heal from the bland legal fight. The outline suit per order-37 of the CPC, 1908, can be used to regain the due amount. According to order 37 of the CPC, 1908, the bouncing case charge must have the court's approval to protect itself.
The Indian Penal Code, 1860
According to the act, the payee party can defend a complaint for cheating as per section 420 of the Indian Penal Court on the same tool, along with the proceeding made as per section 138 of NI.
New Rule for cheque bounce
As per the notice given by RBI at the beginning of August 2021, clients whose monetary actions spin mostly around cheques or those who plan to use cheques will have to secure a bank balance.
The client who gave the cheque also has to pay a fee. If that balance is upheld, the cheque will be said to be bounced. The RBI revealed that the NACH would work daily for 24 hours.
The rule change was brought in to make clearing the cheques faster and generally smoother. These modifications apply to all national and private banks. As the new rule provides that NACH will be working on all days. Even, on Sunday, the work will go smoothly.
New Laws for Cheque Bounce in India 2022
A stand before the court is needed to bring these matters to the court. In simple words, the court must know what just made you move the matter in front of the court. For the bouncing of a cheque, only the holder/payee has the right to bring lawful action against the drawer of the cheque.
Some additional laws govern the bouncing of cheques:
The Indian Constitution.
The Criminal Rules of Practice and Circular Orders, 1990
The Specific Relief Act
Banker’s Book Evidence Act, 1891
Indian Evidence Act, 1872
Bills of Exchange Act, 1882.
Indian Contract Act, 1872.
Indian Limitation Act, 1963
Changes in the cheque bounce law in India focused at:
The modifications of the NI Act have been made to handle the issue of unnecessary delay in settling the cheque bounce to make sure and give ease to the payees of the dishonored cheques and to prevent unnecessary litigation. If the way is run up, it can save a person's money and time.
The revisions have been made to maintain the credibility of the cheque and manage the new banking system. The aim is to aid the country's trade by letting monetary associations resume financing the effective parts of the economy.
The amendments also focus on fast solving the pending and delivering interim payment to the Payee, who filed an objection against the debtor for non-payment of the amount mentioned in the cheque.
According to Section 148, the Supreme Court will also be useful to requests against the order of trusts as per Section 138, even in those cases where the criminal protests for the crime of cheque bounce were filed before September 1, 2018, hence providing its retroactive effect.
Reserve Bank of India Guidelines relevant from August 2021:
These are some major guidelines released by the Reserve Bank of India in Aug 2021:
Bulk Pardon
The recent RBI circular declared the cheque clearance within 24 hours of display in the banks. Before, the holidays had to be cut in case cheques made a payment. It somehow affects the firms and workers who wait for their salaries and have to wait for holidays and weekends. Hence, one who draws cheques in advance, hoping to add enough funds to their accounts later, has to wait for the 24-hour clearing system before taking a cheque.
Positive Pay System (PPS)
According to Positive Pay System, validation of cheques exceeding 50,000 has evolved in a new way. And, the automated machine system may remove those of less amount. The higher amount figures need dual checks.
Penalty & Punishment of the Cheque Bounce
The court will issue a warrant and listen to the case on accepting the protest, with the deposition and suitable paper trail. The defaulter has to be punished with a financial penalty of double the cheque amount or can be sentenced to jail for ten years or more. In some cases, it can be both. The bank also has the right to stop the checkbook facility and close the account for repeat offenses of bounced cheques.
If the debtor pays the cheque amount within 15 days, counting from when the notice is issued, then the drawer does not engage in any crime.
If the debtor fails to pay the amount within 15 days, then the payee may move to file a protest in the court of power within 30 days starting from the expiry date of the 15 days specified in the notice.
Conclusion:
To sum up, bouncing off the cheque can put you in a problematic situation that is expensive and challenging. For that, you have to understand the reasons for the cheque bouncing. For example, no one can sue you if your cheque is bounced, and the reason is for trust and gift to an organization.
It is good to note the balance in your account and keep extra cash for these situations. If you find out that there is inadequate money in your account, you can notify the other party on paper and give a stop payment at your bank into your account before the cheque date.
FAQ:
What are the legal actions to be taken in case of a cheque bounce?
A. According to Section 138 of the Act, 1881, the holder of the cheque has a right to file a complaint against the drawer and can also file a civil case to get that amount back.
What is the way to file a complaint on the drawer under section 138 of the Act?
For filing a complaint, the cheque holder must send a notice of demand to the drawer within 30 days of acquiring the info from the bank, requesting the drawer to give the desired amount within 15 days from the demand notice.
If due, for any reason, the drawer could not give the amount within 15 days from the demand notice about the cheque bounce. In that matter, the heir of the cheque can file an objection to the Learned Judge having the power to consider that complaint.
Is the bounce of a cheque a criminal offense?
Bouncing cheques is believed to be a criminal offense and punishable, as in section 138 of the Negotiable Instrument.
how to send a legal notice for a cheque bounce?
There are certain things that you need to include in your notice of cheque bounce. Know more in detail about legal notice for cheque bounce.
What is the punishment for a cheque bounce, as per the Act?
A drawer of cheques can be sentenced to jail for two years or more, or they may have to give a fine that can be twice the amount of cheques.
In what Cases does a cheque bounce not amount to crime?
In certain cases, bouncing the cheque doesn't count as an offense. Such offense includes:
If there is a difference in the amount written in numbers and words
If the cheque is paid in advance, there is no legal liability for that amount.
If a cheque is given to a trust as a donation/gift.
If the cheque is seen as incapacitated
If a cheque is given as security.
If the change in cheque needs declaration by the drawer
What are the modifications in the cheque bounce law in India?
Two new provisions:
The ability to equip interim payment to the complainant is stated in section 143A.
The ability of the court to order pending payment and requests against belief is stated in section 148.
After the modification, these provisions were merged into the Negotiable Instrument Act. These changes have been made to cut short the way of giving ease to the payee and to apply other provisions to supply interim payment to the payee on the cheque bounce.
What will happen to the case when the drawer pays the amount with interest within the time?
If the drawer is ready to pay the cheque amount with interest within 15 days, then the case proceeding will end.
Author Bio: Advocate Yogita Joshi is known for her sharp wit to crack complex legal problems through their exquisite interpretational skills. She handles a wide range of cases dealing with various issues including civil and criminal especially white-collar crimes, Civil Suits, Family cases & POCSO cases. She also deals with anti-competition, complex contractual matters, Service, Constitutional and Human rights matters, and Matrimonial Cases.
She also works effectively with clients who may be facing highly emotional or stressful situations, such as divorce or criminal charges.