What if cheque gets bounced? What actions can be taken?

  • What if cheque gets bounced? What actions can be taken?

    Date : 11-03-2019 16:46

    Cheques are used in almost all transactions such as repayment of loan, payment of salary, bills, fees, etc. A vast majority of cheques are processed and cleared by banks on daily basis. Cheques are issued for the reason of securing proof of payment. Nevertheless, cheques remain a reliable method of payment for many people. On the other hand, it is always advisable to issue crossed “Account Payee Only” cheques in order to avoid its misuse.

    A cheque is a negotiable instrument. Crossed and account payee cheques are not negotiable by any person other than the payee. The cheques have to be deposited into the payee's bank account.

    A Cheque Bounce case is a criminal case envisaged under section 138 of Negotiable Instruments Act.

     A cheque is said to have bounced because of below mentioned reasons:

    -Stop payment
    -Insufficient balance
    -account closed
    -signature mismatch
    -exceeds arrangement
    -Conditions necessary for cheque bounce

    The cheque is bounced due to insufficiency of funds or all the above reasons: 

    -A Legal notice is given within 30 days.
    -A payment of due amount is not made within 15 days time.

    -The payment was to be made for discharge of legally enforceable debt.

    If your cheque happens to bounce due to insufficient funds or any other technical reason like signature mismatch, both the defaulter and the payee are charged by their respective banks. If the bounced cheque is against the repayment of any loan, you would have to additionally bear the late payment charges (which vary from Rs 200 to Rs 700) along with the penalty fee charges by the bank.

    When a cheque is dishonoured, the drawee bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The payee’s banker then gives the dishonoured cheque and the memo to the payee. The holder or payee can submit the cheque within three months of the date on it, if he believes it will be honoured the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally. 
    The payee may legally sue the defaulter / drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards payee.
    If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases.

    If payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing. 

    The payee has to sent the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
    However, the complaint should be registered in a magistrate’s court within a month of the expiry of the notice period. It is essential in this case to consult an advocate who is well versed and experienced in this area of practice to proceed further in the matter.

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