Cheque Bounce concepts and rules

In the financial world, cheque is an instrument for the business transactions, it is termed as a negotiable instrument to transport money in the physical form or for inter-account transfer. 

Bounced Cheque is a term used to define the unsuccessful processing of a cheque due to various reasons. One of the primary reasons for the cheque bounce is Non-sufficient Funds (NFS). The banks return or dishonour the cheques apart from imposing a particular charge, these cheques are known as Rubber Cheques.

Reasons for Cheque Bounce

Some of the major reasons for cheque bounce have been mentioned below-

• Insufficient balance If the account from which the cheque is issued lacks funds, i.e. if the bank account holds less money then written on the cheque, the bank won’t be able to process the full amount and hence, would dishonour the cheque. 

In this situation a small penalty would be levied on both parties, i.e. the depositor and the issuer. The issuer in this situation has two options- either to sort out the trouble with the receiver/ depositor or to issue another cheque. Also, the receiver of the cheque can start a legal action against the issuer for the non-payment of the cheque.

• Date Mentioned Any problem with the date mentioned could end the cheque being bounced. It could be considered as a small issue, however could result in the cheque not getting processed. 

In case the date has expired on the cheque, it would definitely get dishonoured. If the date on the cheque is 3 months old from the present date, then your cheque would get bounced by the bank. Thus, the validity for a cheque in India is 3 months

• Signature Mismatch Many people have faced this situation, where the signature mismatches or doesn’t match with the bank records, then in such a case the cheque would be marked as bounced. 

Also, if the issuer  signs on the MICR band on the cheque, then in this situation the bank would again disrepute the cheque.

• If the numbers and words of amount are different  If there is a difference in the amount mentioned in numbers and the amount mentioned in words, then the bank in this case would bounce that cheque. 
• Damaged Cheque  while handling the cheque, it should not get damaged or disfigured in any way. In India, various banks do not entertain  torn cheques or disfigured cheques if details are not clearly visible. Also, if the cheque has stains or marks of any kind, then also the cheque would get bounced.
• If there is overwriting on the cheque I\n case there is scribbling, correction, overwriting of any kind on the cheque, such cheque is not acceptable and would be dishonoured immediately. Thus, it would be safe to issue a fresh cheque in case there is any kind of mistake while filling the cheque. Also, such cheques with mistakes shall not be accepted and a fresh cheque should be demanded.

Impacts of Bounced Cheque

• A bounced cheque would result as black mark on your financial credit history. It could impact your CIBIL record and it could result in non-availability of loan. 
• You should ensure before issuing cheque, there is enough balance in your account, so as to ensure that your CIBIL score is not affected in any way.
• As per the guidelines issued by the RBI, a bank can reject the issuing of cheque book to a customer who has been booked repeatedly for cheque bounce cases.
•  For a cheque above the value of Rs. 1 crore, maximum chances offered are four. 
• A legal notice could be issued against you by the bank, in case, the cheque for EMI is bounced for a loan which was issued to you  by the same bank.

Legal Notice for a cheque bounce

Legal notice for cheque bounce is mostly sent by an advocate on behalf of his/her client as a result of the non- payment of the cheque. Sending a cheque bounce notice implies that the beneficiary of the cheque would proceed with a legal action if the payment for the cheque is not done immediately.

To issue a legal notice for cheque bounce the following conditions should be there-

• The should be issued towards a liability
• The cheque should be returned due to insufficiency of balance
• The payee of the cheque could make a demand for the payment of the amount due by sending a notice in writing within 30 days of the receipt of the information by him/her from the banks that there are insufficient funds. 
• If the cheque drawer fails to provide satisfactory reply or payment of the said amount within 15 days of the receipt of legal notice for cheque bounce, legal action could be initiated within one month from the date when the legal notice was sent. 

Lead India offers you a team of experienced advocates, who have successfully dealt with cases including the cheque bounce cases. Therefore, if you wish to talk to a lawyer or seek free legal advice online, you may contact us.