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A cheque is issued by a person out of his/her legal requirements or secures his/her proof for payment to other party. It is used in myriad day-to-day transactions like repayment of loan, payment of school fees, remuneration, rent and many more. The reliability of cheque is more than any other form of payment provided its issuance is in proper order.
A Cheque is a negotiable instrument. It can be treated as an acknowledged as well as acceptable bill of exchange in lieu of money. An important thing, here, is to understand the proper order of its issuance to make it actually negotiable. The cheque should be crossed or stated that it is an account payee cheque;post which, it cannot be negotiable by any person other than the payee. The author of the cheque is known as ‘Drawer of cheque’ and the person in whose favor the cheque is drawn is known as ‘Payee’, in legal parlance.
Dishonor of cheque can happen for many reasons but the one that needs real attention is dishonoring due to insufficient balance in the account. Act of dishonoring of the cheque due to insufficient funds is a criminal offence under Section 138 of Negotiable Instrument Act, 1881. Hence it is important for the author of the cheque to make certain that his/her account should have sufficient balance to honor the issued cheque.
When the cheque is bounced then the drawee bank instantly issue and send a ‘Cheque Return Memo’ to the banker of payee. That cheque return memo mentions the reason for section 138 cheque bounce or non-payment. Lastly, the payee’s banker will return the bounced cheque and the cheque bounce memo to the payee.
What if cheque bounces in India? What should be the plan of action. Generally after a section 138 cheque bounce questions which pop in the minds of the drawee of cheque are can a bounced cheque be resubmitted? Or can a bounced cheque be deposited again? To answer these questions and to know what to do in case of cheque bounce read the below points -
The issuer can request the payee to resubmit the dishonored cheque after depositing the substantial funds in his/her account. The payee can re submit the cheque within 3 months from the date of the issuing of cheque.
The Negotiable Instrument Act, 1881 rightfully allows the payee to legally prosecute the drawer provided the cheque is issued for any debt clearance or towards payment of any other liability by the drawer.
What if dishonored cheque was a gift? In this case, the payee cannot prosecute the drawer.
Section 4 of the Act added chapter XVII which clearly states that:-
“This clause [clause (4) of The Bill] inserts a new Chapter XVII in the Negotiable Instruments Act, 1881. The provisions contained in the new chapter provide that where a cheque drawn by a person for the discharge of any liability is returned by the bank unpaid for the insufficiency of funds standing to the credit of the account on which the cheque was drawn or for the reason that it exceeds the arrangements made by the drawer of the cheque with the bankers for that account, the drawer of the cheque shall be deemed to have committed an offence. In that case, the drawer without prejudice to the other provisions of the said Act will be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both.
The Act has undergone many amendments since its inception year i.e.1881 and is came to be known as cheque bounce law. Section 138 of the Act was incorporated to constitute a strict liability on Cheque. The objective of this provision was to augment the credibility of this negotiable instrument in order to ensure the settlement of liabilities and conduct of normal business transactions. Hence the punishment was increased where imprisonment was extended from 1 to 2 years along with monetary fines as mentioned above or with both.
In short, in order to attract cheque bounce case section 138 of the Act, following conditions are to be fulfilled:-
Drawer should have drawn the cheque from his/her active account as maintained by him/her.
Cheque bounce due to insufficient funds in drawer account.
The issuance of that cheque is towards clearance of debt or any legal liability.
The ideal step would be to send a cheque bounce legal notice to the drawer within 30 days from the date of acknowledging the ‘Cheque Return memo’, stating wherein, to make the payment to the payee within 15 days from the date of receipt of such notice by the drawer.
If the drawer fails to fulfill his/her payment liability, then he/she is punishable under Section 138 cheque bounce. The payee can file the complaint in the Court of Judicial Magistrate of First Class or Metropolitan Magistrate (MM).
The complaint has to be accompanied with an Affidavit by the Payee or the complainant. The submitted documents and complaint will be examined by the concerned MM in order to confirm the commission of offence. Once commission is made confirmed, then summons will be issued for the hearing at the Summary Trial.
On the date of hearing, if the drawer or the accused appears, the MM shall ask him/her to provide as well as submit a bail bond to make certain that he/she appears during trials. Further, he/she has to take notice under section 251 of Criminal Procedure Code and accordingly, submit his/her defense plea.
After hearing the arguments of both the sides, the MM passes the final judgment.
If drawer is found guilty in the light of evidence provided in front of MM, he/she is empowered to pass a sentence of imprisonment from 1 year to 2 years or fine exceeding from Rs.5000/-. Even the cheque issuing bank has the right to restrain him/her from availing cheque book facility and also to freeze/close the account in context to repetitive commission of Cheque bouncing offence under the said Act.
To avail the legal remedies provided for bounced cheque in case of being an account payee cheque or otherwise the following important things are to kept in mind :
Complaint has to be filed within 30 days from the receipt of reply to cheque bounce legal notice or within 30 days after the expiry of 15 days from the date the notice was sent if no reply is received from the drawer of cheque.
The failure to comply with the timeframe of 30 days may be excused by Metropolitan Magistrate in the exceptional circumstances.
Section 138 of negotiable instrument act also covers the dishonour of cheque if the payment of the cheque has been stopped by the drawer of cheque.
If after the receipt of cheque bounce legal notice, drawer of cheque asks the issuer of cheque to present the cheque again and if the cheque gets dishonored again it does not extend the timeline of the drawer as provided in the notice.
For the applicability of Section 138 of Negotiable Instrument Act it is necessary that the cheque has been issued as a legal obligation. It simply means that a cheque given as a gift, donation or any other non-legal obligation are not covered under the cheque bounce law or cheque bounce act.
A cheque expires after three months from the date of its issuance.
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