What happens if the cheque bounces in India?

Law
13-Dec-2022
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A person giving a cheque will be committing a crime in India if the cheque is bounced for insufficient funds, mismatched signature, wrong digits, or so on. To understand the concern, one must first understand why their cheque bounced. A cheque bounce offense is punishable with detention for up to two years or a fine that can be two times the cheque amount. Thus, small & medium-sized companies need to comprehend their rights & duties of a cheque bounce and keep that money in their account to avoid such cases.

In India, the cheque is the most commonly used way of transaction. If doing business and in ordinary life, one can’t carry cash with them, people prefer to use a cheque for transactions. The one who gives and notes the cheque is known as a drawer, and the one who accepts the cheque and in whose name the cheque is marked is stated as the drawee. One should pay the cheque in the payee’s bank account.

If one presents the cheque at the financial institution that bank and gets the right amount, the cheque is considered as marked. Yet, if the bank cannot pay the needed fund said in the cheque to pay, the cheque is then bounced.

Section 138 of the NI Act of 1881 says that a cheque will bounce if there are low funds in the bank, if there is a difference in the amount written in words and numbers if there is a stain on the information, and mismatch in the signature, etc.

In India, cheque bounce is said to be a crime, and you could be sentenced to jail for two years or pay a fine twice the cheque amount.

Section 143A clarifies that interim payment can be given to the plaintiff for the cases made due to the Cheque bounce case that happened online.

 

Cheque Bounce: An Introduction

A cheque in the payee bank goes via the acceptance or pardon way and is paid in cash or credited to the payee’s account.

Though, sometimes, the payee's financial institution, the bank, refuses to honor the cheque or rejects it while defining why it bounced and the reason.

Cheque bounce is a criminal offense that can result in jail of 2 years or a fine twice the cheque amount. All grounds for cheque bounce incur a fine in both the payer and payee accounts. Understanding the reason behind the cheque bouncing is vital to follow the next action. The payee can fill out the bank memo and resubmit the cheque for clearing within three months of the bounce. Let's start with the basics for understanding why cheques bounce in detail.

 

Grounds for Cheque bounce in India

There has been a sudden increase in daily trades since cheques are quite an easy way to move money. Yet, with that, the cheque bounce cases are increasing subsequently. Since it is a severe crime, one must consider the main reason for the cheque bounce in India. One must read the whole concept carefully and avoid making these errors to avoid bouncing the cheque.

One must understand that the cheque bounce is a legal penalty, and one can send a notice legally to ask to pay the money. Following are some reasons that can bounce a cheque:

 

 

  • Low Account Balance

If the party entitled to pay the money has a low money balance in their account to cover the payment of that cheque, the bank rejects it, and the cheque automatically bounces. The bank should move it to the payee with a legal notice stating that the credit limit of the one who has to pay is low and can not cover the cheque amount.

  • Cross-cutting or overwriting

The cheque automatically bounces if the person overwrites the amount, signature, name, or other things, so it is suggested.

  • Expiring validity of the cheque

The party entitled to pay the amount must pay the amount within three months once the cheque gets bounced, and the cheque will be null if not presented to the bank within 3 months. When a bank gets a cheque whose validity is expired, it bears it to the holder.

  • Opposite Signature

The cheque can also get void if the person's signature doesn't match. So it is vital to cross-check every detail to avoid getting it bounced.

  • Deformed Cheque

A cheque will get bounced if there is a stain on the cheque, due to which the essential information is not visible. If the information isn't visible due to any stain or mark, the cheque will be bounced.

  • Wrong-written Numbers and Texts

The cheque can also become bounce if the cheque's digits and words do not match each other. 

Other options such as:

  • An issue with the cheque's date.

  • A mistake in the account number or the payable amount.

  • End of the validity of the cheque.

  • If the account of the drawer is locked.

Other concerns may include payment issues. The firm's seed isn't free on the cheque, suspect cheque, debtor's idiocy or death, scratching on the cheque, etc. Know more about commen check bounce reasons.

What Will Happen if the Cheque Bounces?

Bouncing cheques in lawful words are normally said as cheque bounce. Because of the intricacy of relevant laws and oblivion, one often gets confused about India's cheque bounce law. Process one can follow if their cheque gets bounced.

  • Gather the memo from the bank of the payee that has the cause for the bouncing of the cheque in India.

  • Verify if cheques are bouncing because of low account balances or other technological issues.

  • If the cause of the cheque bounce is other than low balance, reach and share the same with the drawer of the cheque.

  • Lawyers can be of great help in solving cases related to cheque bounce. They can save you from lots of legal trouble and can save you time and money. If the cheque bounced because of a low account balance payer, reach a lawyer with experience in solving these cases.

  • Give a lawful notice in 30 days counting from the cheque bounce sharing the bouncing of the cheque.

  • Determine the expiry of 15 days for the payment of the required amount.

  • If the payment isn't made within 15 days, the legal work will begin from day 16.

  • Starting from filing a complaint as per Section 138 of the NI Act 1881 to the drawer and an experienced attorney.

  • At that time, the cheque bounce case method verifies the transactional debt of the drawer by close proof to ensure it is not a liability.

  • Legal papers must be tied to the plea, including bouncing cheques, bouncing memos, legal notices of bouncing cheques, and legal notice permits.

  • This punishment may result in detention of up to 2 years or a fine twice the cheque amount.

 

Charges of Cheque bounce: Penalty

In India, cheque bounce is a criminal law condition; therefore, a penalty. Section 138 of the NI act 1881 says detention of up to 2 years or with a fine that can be twice the cheque amount. Yet, the fund may not be limited to this though it also has the litigation costs of the drawee.

Notice of cheque bounce

Within 30 days of obtaining a memo of cheque bounce from the payee bank, the drawee must give the payer a lawful notice. (Here is a guide to send a legal notice for cheque bounce.) The required legal notice must define the portion applied in the cheque bounce cases in India and the past deficit in this respect. The payer must be given 15 days to fix the error if there is any error. If the required time of 15 days end, the reason for action starts on Day 16 after completing the 15 days. So, one must complete the payment within 15 days to avoid legal trouble.

 

Remedies of Cheque bounce

Listed below are the best possible solution for the cheque bounce in India:

  • Resubmission of the cheque

When a cheque fails to owe erasure, unmatched signatures, a difference in the amount written in number and in words, a damaged cheque, or a stain in the essential information, the holder can ask the payer to resubmit the cheque. If the payee declines to get another cheque. Rather than a cheque bounce, the holder has the right to take legal action against the payer or file illegal orders against the payer to get the amount owed.

  • The Notice for cheque bounce

According to section 138 of the act 1881, the holder must give the information. A cheque bounce is stated as per the 1881 NI act when a cheque fails due to low funds in the payer's fund to pay the cheque-giving payments. If a cheque gets bounced due to any ground except a low cash balance, no notice is issued, and the payee must ask that the cheque be made again.

 

Conclusion:

As per the Supreme Court, the cases for cheque bounce keep increasing in India, with several 40-lakh remaining to solve before the courts. Yet, the modifications made between 2015 and 2018 promised to solve cases and ensure that victims obtain the desired money. 

The revisions have raised system clarity by banning people from falling behind on their payments. Thus, due to the process of section 138 of NI act 1881, clients now feel safer has helped facilitate business dealings. It’s also assisted keep the present monetary system.

To avoid getting a legal notice, keep a note of the primary grounds for which the cheques get bounced. However, you can contact us if you have legal issues due to cases of cheque bounce. 

Rest The Case lawyers are there to help you get legal assistance. You can email us at info@restthecase.com. Or you can call us at +919284293610

 

FAQ

How and when to give legal notice of the bouncing of the cheque?

The heir must make a need to settle the amount to the payer by providing legal notice to the payer in between 30 days, starting from when the bank informed regarding bouncing the cheque. Thus, to guard his rights as per Section 138 of the NI act 1881, the hier must make a need to pay that amount within the desired time, that is, 30 days. As long as the heir sends a legal notice to the payer at a valid place, it thinks of completing all the heir's duties.

When can a lawyer be appointed per Section 138 of the NI 1881?

One can appoint an attorney/lawyer, as in Section 138, if the payer doesn't pay the money even after the notice period of 30 days. 

When is a cheque said to be bounced?

In some conditions, due to several reasons may refuse the cheque and can bounce the cheque. There are lots of reasons that can make a cheque bounce, such as:

  • Bouncing due to insufficient balance.

  • Bouncing of cheque due to Mismatched signature.

  • Bouncing of cheque due to the Wrong amount in digits and words.

  • Bouncing of cheques due to Damaged cheques, and so on.

The cheque bounce can put a person in legal trouble, such as jail for two years or a fine that can be twice the cheque amount, as stated in Section 138 of the NI act 1881.

How can a person avoid cheque bounces?

The best thing one can do to avoid cheque bounce is never written a cheque when your account doesn't have a sufficient amount. Writing a cheque can make a person legally responsible for sending that money within the desired period. So it's better not to write a cheque if your account doesn't have a sufficient amount. One can create a minimum fund in their account to avoid this happening.

Can a person file an FIR for the bouncing of the cheque?

Yes, a person can file FIR in case of a bouncing cheque from the one who has issued the cheque. An individual can then file a claim to the cheque issuer as per Section 406 or 420 of the IPC in a criminal court. On the other hand, the hier can instantly file a case to the court as per Section 138 of the NI act 1881 for a cheque bounce case after giving a legal notice for a cheque bounce.

What is the penalty charge for a cheque bounce case in India?

The penalty charges for cheque bounce can be Rs 50 to Rs 750, depending on the financial institution.

What are the legal papers needed to file a case for cheque bounce?

There are lots of legal papers required to file a case of cheque bounce, such as:

  • Copy of the legal notice that has been sent.

  • Service Notice proof can be a registered post receipt or courier receipt.

  • An actual cheque that is not paid.

  • The memo of bounced cheque by the bank to the drawer.

  • Verification of the presence of a legally enforceable liability.

Why is it Vital to Hire a Lawyer in India?

As we discussed above, cheque bounces can likely attract illegal charges. Having an lawyer for the cheque bounce case is one way to ensure you are on the right path. 

A skilled lawyer can guide you in managing your cheque bounce case owing to his years of knowledge of solving these cases. The lawyer will collect details from you about the case. They will also take care of all the legal papers so you'll have time to focus on other priorities.

What are the exemptions for Cheque Bounce notices in India?

When there are little differences or modifications in the cheque, it may not get bounced, as the banks can ignore minor errors. Yet, the banks might pay you a fine for the revisions on the cheque. If the name of a charitable trust makes a cheque as an application amount or a gift won’t get bounced.

Author Bio: Adv. Aman Verma is the Founder of Legal Corridor. He has been practicing and handling cases independently with a result-oriented approach, both professionally and ethically, and has now acquired 5 years of professional experience in providing legal consultancy and advisory services.

He has been providing services in various fields of law, including, but not limited to Civil, Criminal, Arbitration, Intellectual Property Rights, Trademark, matters relating to Property Law, Copyright, inter-alia, Suits, Writs, Appeals, Revisions, Complaints relating to Debt Recovery, Dishonor of Cheques, Rent Control Act, Cheque Bounce Matters, Matrimonial disputes and drafting and vetting of various agreements, documents, will, MoU, and so on.