A bounced cheque, or dishonoured cheque, occurs when a bank rejects payment due to issues like insufficient funds, mismatched signatures, incorrect account information, expired cheques, or stop payment requests. This can happen if the cheque writer, also known as the drawer, lacks enough funds or encounters any of these problems.
Bounced cheques can cause trouble for both the recipient and the writer. The payee may face fees and difficulty collecting funds, while the writer could incur bank fees, potential credit score damage, and even legal action. A cheque bounce due to insufficient funds is a criminal offense under Section 138 of the Negotiable Instruments Act, 1881, leading to penalties and charges.
What is a Cheque Bounce Notice?
A cheque bounce notice is a legal warning sent to the issuer of a bounced cheque to demand payment. It’s issued under Section 138 of the Negotiable Instruments Act of 1881 when a cheque bounces due to insufficient funds in the issuer’s account. The individuals receive the notice within 30 days of the cheque bouncing, and the drawer has 15 days to make payment after receiving it. If the drawer doesn’t pay within that time, the payee can file a criminal complaint in court.
How to Know a Cheque Has Bounced?
If a cheque bounces, the bank will message your registered mobile number. It will also issue a cheque return memo to the payee’s banker, which will include the reason for the bounce, the date of the bounce, the cheque number, and the date it was issued.
In India, a bounced cheque is considered illegal and a criminal offence. The issuer may be liable to pay penalties, and the bank may take legal action. The offended party may legally pursue the defaulter by issuing a legal notification within 30 days of receiving the cheque return memo.
New Cheque Bounce Rule
According to a notice issued by the Reserve Bank of India (RBI) in early August of 2021, customers whose financial activities revolve heavily around cheques or those who even plan to use cheques will have to ensure a minimum bank balance. If this minimum balance is not maintained, the cheque will bounce. In addition to this, the customer who issued the cheque may also have to pay a penalty fee. Along with these changes, the RBI announced that the National Automated Clearing House (NACH) would be operational 24 hours a day.
These changes apply to all national and private banks. The rule change was brought in to make clearing the cheques a faster and generally smoother one. Since the new rule ensures that NACH will be operational on all days of the week, Sundays will also be a day on which the entity can process and clear a cheque.
Circumstances of Cheque Bounce
- Insufficient account balance – If there is not enough balance in the drawer’s account to make the payment of the cheque, the bank will reject and return the cheque to the payee with a memo stating insufficient funds to pay the cheque amount.
- Expired validity of cheque – Once the drawer issues the cheque, it must be presented for payment within three months. The cheque expires if it is not presented to the bank within three months. If the expired cheque is given to the bank, it bounces.
- Overwriting – If the signature of the drawer or cheque amount or any other statement has been overwritten on the cheque, the cheque bounces for overwriting.
- Damaged cheque – If a cheque is damaged or disfigured and the details are not visible or have marks or stains, the cheque will bounce.
- Signature mismatch – If the drawer’s signature is unclear or absent or does not match the one in the bank’s data, the cheque will bounce.
- Mismatch of amounts or digits – If the cheque amount mentioned in words and figures does not match, the cheque will bounce.
Remedies Against Cheque Bounce
Resubmission of cheque
When the cheque bounces due to overwriting, mismatch of signature, mismatch of the figures and words of the cheque amount or damaged cheque, the payee can ask the drawer to submit another cheque to rectify the mistake. If the drawer does not agree to submit another cheque, the payee can initiate civil action against the drawer to pay the cheque amount due to him and not the cheque bounce.
Cheque Bounce Notice under Section 138 of the Negotiable Instruments Act
A cheque bounce notice is issued under Section 138 of the Negotiable Instruments Act when a cheque bounces due to insufficient funds in the drawers’ account to make the cheque amount payment. If the cheque bounces for any other reason other than insufficient funds, the cheque bounce notice cannot be issued, and the payee can demand resubmission of the cheque.
Issuance of Cheque Bounce Notice
When the cheque bounces due to an insufficient amount, the first step is to demand the payment of the amount by issuing a cheque bounce notice in writing by post under the Negotiable Instruments Act. The payee can issue a cheque bounce notice within 30 days of an intimation sent by the bank and the bounced cheque stating that the bank cannot make the cheque payment due to an insufficient amount.
After issuing the cheque bounce notice, the payee must give the drawer 15 days time period from the receipt of the cheque bounce notice to pay the cheque amount. If the drawer does not reimburse the cheque amount even after the expiry of 15 days, then legal action can be initiated by the payee against the drawer within 30 days of the expiry of 15 days.
However, a cheque bounce notice cannot be issued if the cheque was issued as a donation, gift or any other obligation that is not legally enforceable. The cheque must be issued to discharge a legally enforceable liability or debt to constitute an offence under the Act.
Procedure to Follow After Issuance of a Cheque Bounce Notice
After 15 days of issuing the cheque bounce notice after the expiry, the payee can initiate legal action against the drawer. The payee should register a complaint under Section 138 of the Act. Under Section 138 of the Act, the offence of cheque bounce is a criminal offence for which the payee can initiate a criminal suit. The payee must file the complaint against the cheque bounce before the Magistrate within 30 days of the expiry of 15 days of issuing the cheque bounce notice.
Jurisdiction of Magistrate for Filing Cheque Bounce Suit
The payee can file the complaint before the Magistrate in any of the following places:
- Where the cheque was drawn.
- Where the cheque was presented for payment.
- Where the payment had to be made.
- Where the cheque is dishonoured.
- Where the demand notice was served.
The cheque bounce complaint has to be filed before the Metropolitan Magistrate if the cheque bounce suit falls in any metropolitan city. If the suit for cheque bounce falls in any other city, the complaint must be filed before the Judicial Magistrate.
Process of Cheque Bounce Suit
The process of a cheque bounce suit is as follows:
- Filing a complaint before the Magistrate after the expiry of 15 days of receipt of cheque bounce notice by the drawer.
- The payee/complainant has to appear before the court and provide the case details. If the Magistrate is satisfied with the complainant’s statement, he will issue a summons to the drawer for appearing before the court.
- The drawer will appear and accept or deny the facts stated by the complainant. If the drawer refuses the complaint, then the court will proceed with the criminal trial of the case.
- The drawer/accused will file his statement, and evidence and arguments of both sides will be presented to the court.
- If the court finds the drawer guilty of the offence of cheque bounce, the court will pass a judgement of conviction against the drawer for the offence of cheque bounce.
The punishment for cheque bounce is imprisonment for a term not more than two years or a fine that can extend to twice the amount of the cheque or both.
A civil suit can also be instituted against the drawer to pay the cheque amount. In the case of the institution of a civil suit, the payee cannot issue a cheque bounce notice. The payee can only issue legal notice for recovery of the amount.
The offence of cheque bounce under Section 138 of the Act provides criminal punishment for cheque bounce due to insufficient amount. In contrast, the civil suit for recovery does not punish the drawer and provides for only the recovery of the cheque bounce amount.
The cheque bounce notice can be issued against the company. A criminal suit can be initiated against a company when it issues the cheque and bounces due to an insufficient amount under Section 148 of the Act. When a criminal suit is initiated under Section 148 of the Act, the company and its directors will be punished for the offence of cheque bounce.
However, if the drawer pays the cheque amount to the payee within 15 days of receipt of the cheque bounce notice, no office is committed by him, and legal action cannot be instituted against him for cheque bounce under section 138 of the Act.
FAQs
Is there a difference between a bounced cheque and a dishonoured cheque?
Yes, a bounced cheque and a dishonoured cheque are similar but not exactly the same. A bounced cheque is a cheque which has not been processed due to the lack of sufficient funds in the payer’s account. A dishonored cheque, on the other hand, is a cheque that has not been processed due to technical reasons such as signature mismatch, illegible writing, discrepancies in cheque amount, etc.
Is cheque bounce a crime?
Yes, cheque bounce is considered a criminal offense under Section 138 of the Negotiable Instruments Act, 1881.
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