When a person has money in the bank, they can withdraw it using a cheque. It is a ‘bill of exchange’ that is always drawn by a specific banker and is payable on demand. When a cheque is presented to a bank for payment, and it bounces, the bank will return the check along with a return memo explaining the reasons for the same. If the bank rejects the cheque due to insufficient funds, the drawer may be served with a cheque bounce notice, and legal action may be taken against them.
Read on to understand what is a cheque bounce notice, its format, Section 138 and Section 144 and the consequences of a cheque bounce notice.
When a cheque ’bounces’, it means that the issuer does not honour it. This notice states that the unpaid creditor or the payee has to give legal notice to the defaulter or the drawer via an advocate, in case of a cheque dishonour, under Section 138 of the Negotiable Instruments Act.
A cheque can bounce for various reasons, but if it bounces due to insufficient funds in the drawer’s account, it is an offence under the Act. In this case, the payee of the cheque can send a cheque bounce notice to the drawer, demanding payment. A cheque bounce is punishable by a fine of up to twice the cheque amount, imprisonment for up to two years, or both under Section 138 of the Negotiable Instruments Act, 1881.
When a cheque bounces for the first time, the bank issues a ‘cheque return memo,’ which explains why the payment was not made. If the holder believes the cheque will be honoured the second time, he can resubmit it to the bank within the specified period or as directed.
The aggrieved party can legally prosecute the defaulter by sending a legal notice within 30 days of receiving the cheque return memo.
A cheque bounce notice format must be proper and frame future legal action’s implications. There cannot be any changes or contradictions to the statements in the notice once it has been sent. Only a legal expert can write a full-proof cheque bounce notice. The cheque Bounce Notice format contains the following :
When a cheque bounces, the payee must file a legal notice within 30 days of receiving the return memo from the bank. After that, if the drawer pays, there is no need to file the case. Because a cheque is a negotiable instrument, any matters relating to it, including cheque bounce notice, are governed by Section 138 of the Negotiable Instruments Act. A cheque bounce notice is a legal notice that must be sent within 30 days of the date the cheque(s) were bounced/dishonoured. A lawyer should draft and sign a legal notice.
According to section 138 of the Negotiable Instruments Act, when a cheque drawn against a person’s account for payment of any amount to another person is returned unpaid by the bank, it is said to have bounced. This could be because the amount of money in that account is insufficient to honour the cheque.
Without prejudice to any other provision of Section 138 of the Negotiable Instruments Act, such person will be deemed to have committed an offence and shall be punished with imprisonment or a fine up to twice the amount of the cheque, or both.
Section 144 of the Negotiable Instruments Act comes into play only if the entity making an offence under section 138 is a company. At the time of committing the offence, every person in charge of the company along with the company will be deemed guilty of the offence. They will also be liable to be prosecuted and punished accordingly, except as provided in this subsection:
Suppose a company commits an offence under this Act, and it is proven that the offence was committed with the consent of or neglect of people working for the company. In that case, it shall also be deemed guilty of that offence and shall be prosecuted and punished accordingly.
When a cheque bounces, the drawer is allowed to repay the cheque amount immediately by sending in a written notice. The following is the procedure for prosecuting cheque dishonour:
The cheque beneficiary has the authority to serve legal notice to the drawer of the check to recover the amount. A cheque bounce notice has to be sent to the defaulter within 30 days of cheque dishonour. The cheque bounce notice must be in proper format and include information about the transactional nature, the amount involved, the date the cheque was deposited with the bank, the cheque bounce date, its reason for bouncing, and whether the beneficiary raised a payment request within 15 days.
Any complaints regarding a bounced check must be filed in the city’s court, where the cheque was presented. The cheque defaulter would have to appear in court to resolve the matter. Once the case is admitted in court, a hearing will be held, and summons shall be issued under Section 138 of the Negotiable Instruments Act.
The drawer files a cheque bounce case. The complaint or case of cheque dishonour is filed at the location where the cheque was submitted for honouring. A case for cheque dishonour can be filed not only against the individual but also against any organisation that has dishonoured the cheque. If the cheque issuer does not make a new payment within 30 days of receiving the notice, a criminal complaint can be filed under section 138 of the Negotiable Instruments Act. However, the complaint must be filed in a magistrate’s court within a month of the notice period expiring.
Several consequences follow bounced or dishonoured cheque:
If the complainant does not receive the payment initially promised, they may file a civil and criminal lawsuit against the drawer. The court will issue summons and hold a hearing after receiving the complaint, an affidavit, and the relevant paper trail.
If found guilty, the defaulter faces a monetary penalty of twice the cheque amount, imprisonment for a term that can be extended to two years, or both. If the drawer pays the cheque amount within 15 days of receiving the notice, the drawer will not have committed any offence. Otherwise, the payee can file a formal complaint in the jurisdictional magistrate court within one month of the notice’s expiration date of 15 days.
The bank has the authority to suspend the cheque book facility and close the account for repeated bounced cheque offences. Furthermore, if the cheque bounced is concerning loan repayment, the bank will penalise the borrower with late payment charges and the penalty fee.
A cheque bounce incident can be disastrous for the accused’s financial credit history. The stigma of a cheque bounce can be extremely damaging to the accused’s CIBIL score.
Dishonour of a cheque is a bailable offence, which means that if a complaint is filed, they can be released on bail. However, suppose a person fails to appear in court after receiving a summon or a letter requiring him to appear in court after receiving bail, the court can issue a non-bailable warrant against him, for which the payee could be arrested.
Cheque bounce cases are seen in banks regularly. Often, a cheque bounce is a consequence of silly and minor mistakes. As a result, in India, we have laws in place to assist us in dealing with cases of cheque bounces. A Cheque Bounce Notice states that if the amount due is not paid within the specified time, the drawee will be allowed to initiate legal proceedings against the drawer as per the Section 138 of the Negotiable Instruments Act 1881. Thus, the drawer must issue a cheque with extreme caution and precautionary measures to avoid the possibility of a cheque bounce and the penalties that come with it.
Ans: Dishonour of cheque refers to the drawer’s inability to pay off the cheque amount to the payee on the due date or when submitted/deposited by the payee with the payee’s banker.
Ans: Under Section 138 of the Negotiable Instruments Act, only the payee has the authority to issue the notice to the defaulting drawer through an advocate or legal firm.
Ans: The cheque is considered bounced when the payee receives both the cheque return memo and the dishonoured cheque.
Ans: The cheque return memo is a memo that informs the payee’s banker and the payee about a cheque dishonour.
Ans: After a check bounces, the drawer will be given a written notice to repay the cheque amount immediately to honour the same cheque.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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