Navigating Consequences And Remedies Of Cheque Bounce?

In an economy, a cheque is a kind of payment that encourages cashless transactions. With time, there has been a rise in the use of cheques as a form of payment. When transacting, people prefer to give cheques rather than carry cash. It’s a perilous business to carry currencies, particularly when the amount is excessive.

The cheque is considered honoured by the bank when the payee presents the cheque to the bank and receives the specified amount. The cheque is regarded as being dishonoured by the bank if it declines to pay the amount due in exchange for the customer’s cheque.

Section 138 of Negotiable Instruments Act: About

• According to this section, dishonouring a cheque is when someone who has a bank account tries to pay someone else from that account to settle any debt or other liability, either whole or partially, and the bank returns the cheque. If there is not enough money in the bank to cover the payment need or if the sum mentioned exceeds what is required to be paid from that account under a bank agreement, the payment may be returned. 
• Punishment: Someone who does such a thing faces a maximum sentence of two years in prison, a maximum fine of double the amount of the cheque, or both.

Consequences of a Cheque Bounce Case

Civil Liability:

• The person who issues a bounced cheque is subject to civil penalties in addition to criminal penalties. 
• Under Order 37 of the Code of Civil Procedure of 1908, the payee has the right to file a civil case to reclaim the outstanding sum, together with any accrued interest and legal costs. 
• The civil court can require the issuer to pay the outstanding amount owed to the payee to compensate them.

Criminal Liability:

The Negotiable Instruments Act imposes criminal culpability on the issuer of a dishonored cheque. The payee may file a complaint with the relevant court if the issuer fails to process the payment within the allotted time after being notified. The Act stipulates that the issuer of a bounced cheque may be subject to criminal punishments, such as:

• a maximum of two years behind bars,
• a financial penalty, or both.

In addition, the issuer may be ordered by the court to reimburse the recipient for the full amount on the returned cheque as well as any other expenses.

Remedies of a Cheque Bounce Case

Both the issuer as well as the recipient of a bounced cheque have a number of options. Among the remedies are:

• Representing the Cheque: After confirming that there is enough money in the issuer’s account, the recipient may represent the cheque for payment.
• Opening a Case: The recipient may bring legal action against the issuer for non-payment of the cheque if the issuer declines to pay or if the cheque bounces on purpose.
• Settlement Negotiations: To resolve the conflict, the parties may discuss a settlement and decide on a payment schedule.
• Using Alternate Payment Methods: Parties may elect to make use of credit cards, online transfers, or payment apps as an alternative to cheque bounce.

Procedure for Filing a Cheque Bounce Case

Sending a Notice to the Drawee:

• Serving the Legal Notice to the drawee is the first step in initiating a case against a bounced cheque. Either registered or speed post can be used to deliver the message. If a cheque bounces, a legal notice needs to be sent out within 30 days. Then, a case must be filed in a total of 45 days, which includes the first 30 days for sending the legal notice and the remaining 15 days.
• Making sure the drawee is aware of the reason why the cheque bounce is the aim of the legal notification that has been sent to them.

Supreme Court in K.K. Verma v. Union of India (2003) 3 SCC 199 made it clear that if a cheque is dishonored, the payee must serve a legal notice to the drawer within 30 days of receiving the information of dishonor from the bank. If the drawer fails to make payment within 15 days after receiving the notice, the payee can initiate criminal proceedings under Section 138. It was also by the court that the drawer cannot evade criminal liability by raising technical defenses, and the key issue is whether the cheque was issued for a legally enforceable debt.

Filing a Complaint:

• The drawee who has been the target of the complaint must appear in court as per the second step. The payee has 30 days after the notice period expires to file a complaint with the appropriate court if the drawer does not make the payment within 15 days of receiving the notice. 
• If the drawee is not guilty, they must establish their innocence and ask the court for bail.

Serving of Evidence:

• Thirdly, the payee is required to furnish the principal proof that the cheque bounced as a result of the drawee’s carelessness. 
• For example, the payee may produce the notice-served record and the memo from the drawee’s bank.

Initiation of the Trial Procedure:

• The trial process is followed by the next procedure. Section 138 of the Indian National Instruments Act governs the trial procedure for the bouncing case. 
• The drawee has the opportunity to cross-examine the evidence that the payee presents to bolster their position. Try to further establish their innocence.

Taking Legal Action:

• The sentence the court orders at the end of the hearing procedure is the last stage in the bouncing case. Two years in prison plus a fine equal to twice the amount shown on the returned cheque. 
• These therefore are the detailed steps for the Court Judgment in the instance of the bounced cheque.

Important landmark judgment 

In M/s. Indian Bank Association v. Union of India (2014) 5 SCC 590 Supreme Court upheld the constitutionality of Section 138, emphasizing its role in ensuring the credibility of cheques and promoting trust in financial transactions while clarifying the procedures for filing complaints.

In Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129, the Supreme Court held that the jurisdictional issue for filing a complaint under Section 138. The Supreme Court ruled that the jurisdiction to file a case for dishonor of a cheque lies in the court where the bank that dishonored the cheque, is located. 

The Supreme Court clarified the jurisdictional aspects, as before this ruling, there was confusion about whether the case should be filed where the cheque was issued or where it was dishonored. The Court held that the place of dishonor (where the cheque was presented for payment and rejected) is the appropriate jurisdiction for filing the complaint, making it easier for complainants to file cases in the correct forum.

In R. K. Agarwal v. State of U.P. (2017) 3 SCC 243, Supreme Court held that a dishonored cheque due to insufficient funds automatically attracts criminal liability under Section 138. 

The Court clarified that the offense is committed when the cheque is dishonored, and the drawer fails to make the payment within the prescribed time, irrespective of any other argument from the accused. 

The ruling made it clear that once the cheque is dishonored, the liability of the drawer is established, and the only defense available to the accused is to prove that the cheque was not issued for a valid debt or liability, which can be rebutted by sufficient evidence.

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FAQs

What are the criminal liabilities for cheque bounce?

The issuer of a bounced cheque can face criminal charges under Section 138, resulting in imprisonment of up to two years, a fine of up to double the cheque amount, or both.

How long do I have to file a case after a cheque bounces? 

The payee must send a legal notice within 30 days of receiving information of dishonor and file a complaint within 45 days from the date of dishonor.

What remedies are available in case of a bounced cheque?

Remedies include representing the cheque for payment, filing a legal case against the issuer, negotiating a settlement, or using alternate payment methods such as online transfers.