A cheque is a widely accepted form of payment that has been used in India for several decades. A cheque is a written order that authorizes the bank to pay a certain sum of money to a person or entity. However, when a cheque is dishonored or bounces, it creates a lot of problems for both the payee and the drawer of the cheque. In this article, we will discuss the concept of cheque bounce notice in the Indian context.
What is a Cheque Bounce?
A cheque bounce or dishonor is a situation where the bank refuses to honor a cheque presented by the payee due to various reasons. There are several reasons why a cheque may be dishonored by the bank, such as insufficient funds, mismatch in the signature, irregularity in the date, overwriting, alterations, or stale cheque. When a cheque is dishonored, the payee gets a return memo from the bank stating the reason for dishonor.
Cheque Bounce in India
Cheque bounce is a common problem faced by businesses and individuals in India. In India, cheques are widely used as a mode of payment, and a cheque bounce can lead to a lot of financial and legal troubles for both the parties involved.
As per Section 138 of the Negotiable Instruments Act, 1881, a cheque bounce is a criminal offence in India. A cheque bounce is punishable with imprisonment for a term that may extend to two years, or with a fine that may extend to twice the amount of the cheque, or with both.
Legal Recourse for Cheque Bounce
When a cheque is dishonored by the bank, the payee can take legal action against the drawer of the cheque under Section 138 of the Negotiable Instruments Act. The payee can send a legal notice to the drawer of the cheque within 30 days of receiving the return memo from the bank. The drawer of the cheque has 15 days to make the payment after receiving the notice.
If the payment is not made within 15 days, the payee can file a complaint in the court within 30 days of the expiry of the notice period. The complaint should contain the details of the cheque, the date of issue, the amount of the cheque, the reason for dishonor, and the notice sent to the drawer of the cheque.
Once the complaint is filed, the court will issue a summons to the drawer of the cheque. If the drawer of the cheque fails to appear before the court, the court can issue a warrant against the drawer of the cheque.
If the drawer of the cheque is found guilty, the court can impose a fine of twice the amount of the cheque, or imprisonment for a term that may extend up to two years, or both.
The Legal Process for Cheque Bounce
The legal process for cheque bounce in India is quite complicated and time-consuming. The process involves several stages, and the payee has to follow each stage carefully to ensure that the case is resolved in their favour. The following are the stages involved in the legal process for cheque bounce:
- Legal Notice: The payee should send a legal notice to the drawer of the cheque within 30 days of receiving the return memo from the bank. The notice should contain the details of the cheque, the date of issue, the amount of the cheque, the reason for dishonour, and the demand for payment.
- Waiting Period: The drawer of the cheque has 15 days to make the payment after receiving the notice. If the payment is not made within 15 days, the payee can file a complaint in the court within 30 days of the expiry of the notice period.
- Filing the Complaint: The payee should file a complaint in the court within 30 days of the expiry of the notice period. The complaint should contain the details of the cheque, the date of issue, the amount of the cheque, the reason for dishonor, and the notice sent to the drawer of the cheque.
- Summons: The court will issue a summons to the drawer of the cheque, asking them to appear in court. The summons will be sent through registered post or served in person.
- Appearance: The drawer of the cheque has to appear in court on the date mentioned in the summons. If the drawer fails to appear in court, the court can issue a warrant against them.
- Evidence: The payee has to present evidence to prove that the cheque was dishonoured due to insufficient funds or any other reason. The evidence can include the return memo received from the bank, the notice sent to the drawer, and any other relevant documents.
- Judgement: If the court finds the drawer guilty, they can impose a fine of twice the amount of the cheque, or imprisonment for a term that may extend up to two years, or both. The court may also order the drawer to pay the amount of the cheque to the payee.
Impact of Cheque Bounce on Businesses and Individuals
Cheque bounce can have a severe impact on the financial stability of businesses and individuals. When a cheque bounces, it creates a lot of financial and legal problems for both the parties involved. For the payee, a cheque bounce can lead to a cash flow crisis, as they may have already accounted for the payment from the cheque.
The payee may also have to incur additional expenses to pursue legal action against the drawer of the cheque.
For the drawer of the cheque, a cheque bounce can lead to a loss of reputation and credibility in the market. The drawer may also have to pay hefty fines or face imprisonment, which can have a severe impact on their financial stability and future prospects.
Measures to Prevent Cheque Bounce
There are several measures that businesses and individuals can take to prevent cheque bounce:
Maintain Sufficient Balance: One of the most common reasons for cheque bounce is insufficient funds. To prevent this, businesses and individuals should maintain sufficient balance in their bank account to cover the amount of the cheque.
Check the Signature and Date: Before issuing a cheque, businesses and individuals should ensure that the signature and date on the cheque are correct and match the records maintained by the bank.
Avoid Overwriting and Alterations: Any overwriting or alterations on the cheque can lead to its dishonour. Businesses and individuals should avoid making any changes to the cheque once it is issued.
Avoid Stale Cheques: A cheque becomes stale after three months from the date of issue. Businesses and individuals should avoid issuing stale cheques to prevent their dishonor.
Cheque bounce notice format
Here is a sample format for a Cheque Bounce Notice:
[Your Name] [Your Address] [City, State, Zip Code] [Date]
[Name of Drawer of Cheque] [Address of Drawer of Cheque] [City, State, Zip Code]
Subject: Notice for Cheque Dishonour
Dear [Name of Drawer of Cheque],
This is to bring to your attention that the cheque [Cheque Number] dated [Cheque Date] drawn on [Bank Name] and issued by you for an amount of [Cheque Amount] in favour of [Payee Name] has been dishonoured by the bank due to [Reason for Dishonour].
As per the provisions of Section 138 of the Negotiable Instruments Act, 1881, you are liable to make the payment for the cheque amount within [Number of Days] days from the date of receipt of this notice failing which, I shall be constrained to take legal action against you for recovery of the amount along with interest, compensation and legal expenses.
Please take note that if the payment is made within the stipulated period, I shall not take any legal action against you.
Sincerely,
[Your Name]
Cheque bounce charges and penalty
Cheque bounce charges and penalties in India can vary depending on the reason for the dishonour, the amount of the cheque, and the bank’s policies. Here are some of the common charges and penalties associated with cheque bounce:
- Penalty charges: Banks charge a penalty fee for cheque bounce, which can range from Rs. 200 to Rs. 500 or more, depending on the bank’s policy.
- Legal charges: If the payee decides to take legal action against the drawer of the cheque, they may have to pay legal charges for sending a legal notice and filing a complaint in the court.
- Interest charges: The payee may be entitled to receive interest on the cheque amount from the date of the cheque till the date of actual payment.
- Court fees: If the case goes to court, the payee may have to pay court fees for filing the complaint.
- Criminal charges: Cheque bounce is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881. If the drawer of the cheque is found guilty, they may have to pay a fine of twice the amount of the cheque or face imprisonment for a term that may extend up to two years, or both.
- Reputation damage: Cheque bounce can damage the reputation of the drawer of the cheque, as it may affect their credit score and make it difficult for them to obtain loans or credit in the future.
It is important to note that the charges and penalties associated with cheque bounce can add up quickly and can have a significant impact on the financial and legal status of both the payee and the drawer of the cheque.
Therefore, it is advisable to ensure that there are sufficient funds in the account before issuing a cheque and to avoid post-dating or making any alterations to the cheque.
In case of a cheque bounce, it is important to follow the legal process and settle the issue out of court if possible to avoid further complications and expenses.
FAQs on Cheque bounce
A cheque bounce occurs when a cheque presented for payment is dishonored by the bank due to insufficient funds in the account, the cheque being post-dated, or any other reason.
Section 138 of the Negotiable Instruments Act, 1881 is a legal provision that deals with the offence of cheque bounce. It provides for imprisonment for a term that may extend up to two years, or a fine of twice the amount of the cheque, or both.
The most common reasons for cheque bounce are insufficient funds in the account, the cheque being post-dated, signature mismatch, alterations or overwriting on the cheque, and the cheque being stale.
The legal process for cheque bounce involves sending a legal notice to the drawer of the cheque, filing a complaint in the court, and presenting evidence to prove that the cheque was dishonoured due to insufficient funds or any other reason. If the court finds the drawer guilty, they can impose a fine of twice the amount of the cheque or imprisonment for a term that may extend up to two years, or both.
The legal notice for cheque bounce should be sent within 30 days from the date of receiving the cheque return memo from the bank.
Yes, a cheque bounce can be settled out of court if the drawer of the cheque agrees to make the payment to the payee within the stipulated time period mentioned in the legal notice.
Yes, cheque bounce is considered a criminal offence under Section 138 of the Negotiable Instruments Act, 1881. If the drawer of the cheque is found guilty, they can be sentenced to imprisonment for a term that may extend up to two years or a fine of twice the amount of the cheque, or both.
Conclusion
In conclusion, cheque bounce is a serious issue in India that affects both the payee and the drawer of the cheque. It can lead to financial losses for the payee and legal consequences for the drawer of the cheque.
Therefore, it is important to ensure that there are sufficient funds in the account before issuing a cheque and to ensure that the cheque is not post-dated or altered in any way. In case of a cheque bounce, the legal process should be followed and a legal notice should be sent to the drawer of the cheque within 30 days.
It is always better to settle the issue out of court if possible to avoid legal complications and expenses. The legal provision of Section 138 of the Negotiable Instruments Act, 1881 provides a way for the payee to recover the cheque amount along with interest, compensation, and legal expenses. Cheque bounce can be avoided by taking necessary precautions and being responsible while issuing a cheque. Hope this information on cheque bounce notice will help you.