Dishonour of Cheques: Complaint Procedure: Penalties

Key Takeaways

• When a person writes a check to someone else, he or she may not be aware of the current bank balance, and the check may be returned unpaid. In such cases, the cheque drawer is given 30 days to refund the money to the payee. 
• The Negotiable Instruments Act of 1881 governs incidents of cheque dishonour. Dishonouring a check, according to Section 138 of the Act, is a criminal violation punishable by two years in prison and a monetary reparation as fine or both.
• An out-of-court settlement can be reached at any moment if both parties do not want to waste time in court.
• The plaintiff has the option of filing a "summary suit" under Order 37 of the Code of Civil Procedure, 1908.
• The holder of the cheque can now bring a lawsuit before a magistrate in both his home and the location where he submitted the check, thanks to the new modification.

Introduction

All Indian banks are governed and their operations are regulated solely by statutes, most notably the Negotiable Instruments Act of 1881, the Reserve Bank of India Act of 1934, and the Banking Regulations Act of 1949. Let's take a look at the numerous issues that affect a cheque as a major negotiable instrument, as well as the legal requirements that must be met by the parties when a cheque is bounced or dishonoured.

Dishonour of cheque

• People's business transactions are increasing every day, and the stability of maintaining a bank balance has been varying depending on the people's financial necessities. 
• When a person writes a check to someone else, he or she may not be aware of the current bank balance, and the check may be returned unpaid. In such cases, the cheque drawer is given 30 days to refund the money to the payee. 
• However, if the drawer does not pay the money after that time, the payee has the option of filing a lawsuit against the drawer for payment of the cheque amount as well as interest as compensation for the drawer's default.

Legal recourse

• When a cheque is returned, the bank will send a 'cheque return memo' to the payee's banker, detailing the cause for the cheque's return. 
• The banker then sends the dishonoured check and the cheque return memo to the payee. 
• The payee may then send a letter to the drawer requesting payment of the amount within 15 days of the cheque's issuance date, and resubmit the cheque within 30 days of the resubmission date, in the hopes that the cheque will not be dishonoured this time. 
• If the cheque is dishonoured again, the payee has the legal right to sue the drawer for the cheque's dishonour.
• Only when the check is issued to discharge a duty or debt by the drawer can the payee bring a lawsuit against the drawer. When a check is issued as a gift or for the purpose of lending money for illegal activities, the payee has no right to sue the drawer if the check is dishonoured.
• The Negotiable Instruments Act of 1881 governs incidents of cheque dishonour. Dishonouring a check, according to Section 138 of the Act, is a criminal violation punishable by two years in prison and a monetary reparation as fine or both.
• This section of the Act states that when a person issues a cheque in favour of another person for the payment of any liability or debt to that person, and the prescribed amount exceeds the limit of amount to be paid from that bank, the person is deemed to have committed the offence due to a lack of funds or if the prescribed amount exceeds the limit of amount to be paid from that bank, the person is deemed to have committed the offence. 
• When a person commits many cheque bounce violations, the bank has the right to suspend the person's cheque facility and potentially shut his account.
• In some circumstances, the defaulter has one month from the date of the lower court's verdict to appeal to the Sessions Court. 
• An out-of-court settlement can be reached at any moment if both parties do not want to waste time in court. In many circumstances, the party brings a separate civil claim against the defaulter in order to recover the amount of the check as well as an appropriate rate of interest as compensation.

Summary suits

In many cases, the defendant will be unable to defend himself. In this case, the plaintiff has the option of filing a "summary suit" under Order 37 of the Code of Civil Procedure, 1908. The defendant will not be given the opportunity to defend himself unless he obtains court permission to do so. The majority of summary suits are filed in civil matters based on recovery procedures. Promissory notes, bills of exchange, and checks are all examples. It does not carry any sort of criminal accusation because it just seeks to recover a debt or property from the offender as quickly as possible.

Amendment to the Act

• Despite the fact that the Negotiable Instruments Act has been revised numerous times for a variety of reasons, the historic revisions to the Act were made twice before the most recent amendment in 2015. 
• The most recent revision embraces a number of concepts about the courts' jurisdiction in such cases. In many circumstances, the drawer will be in one location and the payee will be elsewhere. In such circumstances, the parties find it difficult to deal with the consequences of their conduct. 
• The holder of the cheque can now bring a lawsuit before a magistrate in both his home and the location where he submitted the check, thanks to the new modification. As a result, litigation costs will be reduced, and check drawers will be more cautious when signing checks.
• According to the newly adopted Section 142A, every case of the same sort, whether filed or transferred previously, must be brought before the courts that have jurisdiction under the new procedure.

Conclusion

One of the most common problems parties confront when transferring money via negotiable instruments is cheque dishonour. It will hold the drawer accountable even if he was uninformed of the inadequacy of funds in his account within a specified time frame. However, the law gives them a reasonable period of time to restore the money to the payee. After such a period, any default must be deemed a criminal act because it entails the unlawful intent of not repaying the money to the worthy party. As a result, the legislation specifies that parties writing a check must be informed of the amount of money in their respective banks.