Implications of Cheque Bounce in India

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?

Section 138 of the Negotiable Instruments Act, 1881 (“Act”) states that a cheque bounce is a punishable offence. You can be fined up to double the cheque value or imprisonment for up to two years in prison or both. A cheque will bounce when the payee gives it to the bank for clearance and the bank returns it with a memo stating that the account has insufficient funds.

Common Reasons for a Cheque Bounce

Insufficient funds in the payer’s account.
Mismatch in amount in words and digits written on the cheque.
Discrepancies in the payer’s signature on the cheque and in the bank’s records.
Stale cheques or expired cheques are cheques that have not been deposited into the bank within three months of the date of issue, and banks are not required to honour them, causing cheque bounce.
Compromised cheques where the writing is illegible or the cheque in itself is damaged somehow are not honoured by banks.

Punishment for Cheque Bounce

A dishonored cheque can have serious repercussions. The consequences can range from financial penalties to legal actions. Here’s a detailed look at the various outcomes.

Cheque Bounce Notice to Payer

A cheque bounce notice may be sent to the payer in the form of a legal notice within 30 days of the cheque bouncing and receiving the cheque return memo. If the drawer fails to make the payment within the stipulated time after receiving the legal notice, i.e., 15 days, the payee can pursue legal action in the form of a cheque bounce case.

Bank Penalty to Both Payer and Payee

Banks usually impose a cheque bounce penalty on both the payer and the payee when a cheque bounces. The payer is charged for insufficient funds or any other reason that caused the cheque to be dishonoured, while the payee may also incur charges for depositing a cheque that could not be cleared.

Jail Time or Fine

Under Section 138 of the Negotiable Instruments Act, 1881, if the drawer fails to make the payment within 15 days of receiving the cheque bounce notice, the payee can file a complaint in court. This can lead to imprisonment for up to two years or a fine up to double the amount of the cheque, or both.

Relevant Legal Framework

Section 138 of the Negotiable Instruments Act, 1881: This section deals with the penalties for dishonouring cheques and outlines the procedure for filing a complaint.
Section 420 or 406 of the Indian Penal Code (Indian Penal Code): In some cases, a cheque bounce can also be prosecuted by filing an FIR against the payer under Section 420 or Section 406 of the IPC, which deals with cheating and dishonestly inducing delivery of property.

FAQs

What is a cheque bounce?

A cheque bounce occurs when a bank refuses to honor a cheque due to insufficient funds, incorrect signatures, mismatched amounts, or other issues. The bank returns the cheque to the payee, marking it as “dishonored.”

What are the common reasons for cheque bounce in India?

Insufficient funds in the issuer’s account.
Signature mismatch on the cheque.
Incorrect date or stale cheque (older than 3 months).

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