Relief to Victims of Cheque Bounce

Cheque bounce or dishonored cheque are the cheques that the bank on which they are drawn declines to pay for insufficient funds or any other reason. A cheque comes under the preview of the Negotiable Instruments Act, 1881 and is defined under Section 6 of the Negotiable instrument as a bill of exchange drawn on a specific banker, therefore when a cheque is dishonored or declined by the banker the remedy for it is also redressed under the Act.

Few reasons for a cheque bounce are listed below:

a) Insufficient funds

Insufficient funds are one of the most common and prevalent reasons for a cheque bounce. This happens when a cheque is issued by the issuer for a sum that exceeds the available funds in his/her bank account.

b) Faulty Signature

A Bank does not accept a cheque if the signature of the issuer/account holder does not match with the exemplar signature that is available in the bank records.

c) Date mentioned on the Cheque

Date mentioned on the cheque holds a lot of importance, and any irregularities or issues with it may lead to dishonor of the cheque. It is an important piece of information and thus cannot be ignored.

d) Correction and overwriting on Cheque

In case of any scribbling, correction or overwriting over the cheque, the bank does not accept it. For any reason if any changes are made to the cheque, it is advisable to issue a fresh cheque so that it does not get dishonored.

e) Frozen account

An account is frozen on the orders of the government or court. On such orders the bank stops/dishonors all the cheques and payments of the person’s account.

While above are the few reasons for a cheque bounce, there might be a lot more reasons for such dishonor at the instance of the respective banks. However, for Section 138 to apply the cheque must have been dishonored due to insufficient fund and the amount can be recovered from the drawer by following below procedure:

1. When a cheque is rejected by the bank, it is returned with a memo stating reasons for such rejection. It can be submitted again if the payee thinks there is a probability for acceptance, but in case it is rejected for the second time also, then the payee can proceed legally for recovery of the amount.
2. As mentioned above the Cheque is a negotiable instrument and is governed by Negotiable Instruments Act, 1881, the action and procedure for cheque bounce are also envisaged under the Act. The Act makes it a criminal offense and lays out following procedure to redress it:
3. Once the cheque is bounced/dishonored the payee would receive a ‘cheque return memo’. Within 30 days of receiving the memo the payee has to send a written notice to the payor stating that his cheque has been dishonored and the amount mentioned on the cheque has to be returned to him within 15 days of receipt of the notice, failing which he would proceed with criminal complaint under Section 138 of the Negotiable Instruments Act, 1881.
4. In case the payor fails to make the payment within 15 days of receipt of notice, the payee can proceed legally within 30 days from that date.
5. A formal complaint has to be filed by the payee in the Magistrate’s Court. For Section 138 of the Negotiable Instruments Act, 1881, following conditions have to be met with:

   a) The cheque must have been drawn by the drawer on his account personally maintained by him.

   b) The cheque must have been dishonored for the reason of insufficient funds in the drawer's account.

   c) The cheque is issued for discharge of a debt or liability.

6. If the above conditions are met, then the payee may file a complaint in any of the following jurisdictions:

   a) Place where the payee issued the cheque.

   b) Place where the cheque was furnished for payment.

   c) A place where the drawee paid the amount to the drawer.

   d) Place where the cheque had been dishonored, or.

   e) Place where the demand notice was served.

7. The cheque bounce complaint has to be filed before a Metropolitan Magistrate /Judicial Magistrate respectively.

The complainant has to appear before the court and provide the details of the case. The Documents required include:

1. A copy of the notice served to the payor.
2. A proof that the notice has been served (copy of courier receipt, etc.).
3. Original Cheque.
4. Cheque return memo issued by the banker while returning the cheque.
5. Proof of an existing legally enforceable debt.

• If the Magistrate is satisfied with the facts presented by the complainant, he would issue summons to the drawer to appear before the court on a date specified by him.
• The Drawer is given an opportunity to present himself before the Court and accept or deny the facts presented by the Complainant to the Court.
• If the drawer denies the facts stated by the complainant, the Court proceeds further with the Criminal trial of the Case.
• If, after the thorough perusal of Court in the trial, the Magistrate find the Drawer guilty of the offense, he will pass an order with regard to the same pronouncing the payment of an amount that maybe double the amount mentioned on the cheque and/or imprisonment up to 2 years under section 138 of the Negotiable Instruments Act, 1881.

A cheque bounce is a non-cognizable offense; hence a person cannot be arrested without an Arrest Warrant.  The country has seen a rise in the cheque bounce in the past decade and various measures are being discussed to redress the pendency of these cases in the Courts including the discussion to set up fast-track Courts for a limited period, decriminalizing the offense, etc.

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