Cheque bounce

When a cheque is dishonoured, the drawee bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The payee’s banker then gives the dishonoured cheque and the memo to the payee. The holder or payee can resubmit the cheque within three months of the date on it, if he believes it will be honoured the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally.  

The payee may legally sue the defaulter / drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards payee.

If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases.

If payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing. 

The payee has to sent the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act. 

Cheque is a negotiable instrument.  Normally, cheques are issued either for the reason of statutory requirement or for the reason of securing proof of payment.  Crossed and account payee cheques are not negotiable by any person other than the payee.  It has to be deposited into his bank account.  In legal parlance, author of the cheque is called ‘drawer’, the person in whose favour it is drawn is called ‘payee’ and the bank who is directed to pay the amount is called ‘drawee’.  It is always safe to issue crossed “Account Payee Only” cheques in order to avoid its misuse.  Blank cheques are not safe.  It is better to date the cheque invariably.  A cheque is valid for payment only for six months from the date mentioned in the cheque.  After the period of six months, such a cheque is called ‘stale cheque’.

BOUNCING

A cheque becomes due for payment on the date mentioned on it.  Before issuing a cheque author of the cheque should ensure that he has sufficient funds in his account. Lest, it would bounce with remarks ‘insufficient funds’.  Bouncing in common parlance is referred to dishonour of  cheques.

Bouncing of a ball is a fun but bouncing of a cheque is a criminal offence.  The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. This Act has been amended many times since 1881 and I am going to discuss the provisions of this Act as it stands today.

WHAT HAPPENS WHEN A CHEQUE IS DISHONOURED?

Immediately upon dishonour the drawee bank issues a ‘Cheque Return Memo’ to the banker of the payee citing the reason for non-payment.  In turn the payee’s banker shall handover the dishonoured cheque and the memo to the payee.  

WHAT IS TO BE DONE THEN?

The payee has an option open to him either to re-present the cheque if and when he thinks the cheque could be honoured but within six months from the date of the cheque or proceed legally to prosecute the drawer.  The payee may prosecute the drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other legal liability of the drawee towards payee.  Mere issuance of a cheque say for the purposes of gift, or towards lending a loan or for unlawful purposes would not amount to legal liability and the drawer cannot be prosecuted in such cases.

TO PROCEED LEGALLY

If he decides to proceed legally, then the drawer should be given an opportunity of making good the cheque amount immediately.  Such an opportunity has to be afforded only by means of a notice in writing. 

LEGAL PROVISIONS

Under Section 138 of the Negotiable Instruments Act, 1881 as amended up to date, the notice has to be sent by the payee to the drawer in writing within thirty days from the date of receiving Cheque Return Memo from the bank and demand the cheque amount to be paid to him within fifteen days from the date of receipt of such a notice by the drawer.

CONDITIONS FOR PROSECUTION

Law prescribes certain conditions to be fulfilled in order to attract provisions of Section 138. 

A)     The cheque should have been drawn by the drawer on an account maintained by him.

B)     It should have been returned unpaid either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank.

C)    Cheque must have been issued towards discharge of a debt or legal liability.

D)    If after receiving the notice, the drawer does not make payment within fifteen days from the date of receiving such a notice, then he commits an offence punishable under Section 138 of the Negotiable Instruments Act. 

PUNISHMENT

Punishment prescribed for such an offence is fine which may extend to twice the amount of the cheque or imprisonment for a term which may be extended to two years or both.

FILING COMPLAINT

If the drawer makes payment of the cheque amount within fifteen days from the date of receipt of the notice, then drawer does not commit any offence.  Otherwise, the payee may proceed to file a complaint in the court of the jurisdictional magistrate within one month from the date of expiry of fifteen days prescribed in the notice. 

If the payee fails to file the complaint within thirty days, the complaint becomes barred by limitation of time.  The jurisdictional magistrate court may refuse to entertain such a belated complaint.  However, if the payee has sufficient reasons to justify delay in filing the complaint, he may make an application before the magistrate along with the complaint, to explain the reasons for delay and seek condoning of delay.  Cognizance of the complaint may be taken if the Court is satisfied that the payee had sufficient cause for not making the complaint within the prescribed period.

After the complaint is filed and taken on record the proceedings against the drawer being.   

CIVIL ACTION

The payee may also initiate money recovery procedure in a jurisdictional civil court apart from prosecuting the drawer for criminal offence.  It is essential in this case to consult an advocate who is well versed and experienced in this area of practice to proceed further in the matter.

FINER POINTS

The procedure of filing complaint and prosecuting the drawer in a court of magistrate involves certain finer points like cause of action, preparation of legal notice and complaint in accordance with legal requirements, modes of sending the written legal notice, service of summons and non-bailable warrants, conducting the criminal case etc.  It is advisable to consult an advocate who is well versed and experienced in this area of practice.

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You have to give notice to the drawer of the cheque within 30 days of return of the cheque unpaid. You have not done it. What is most important is that you must be able to give evidence to the court that you have given notice within the time limit. An SMS is a modern thing not thought of when the bill was drafted/amended. But the basic point is irrefutable evidence. If you can give such evidence you can try suing him. Alternatively you can also quietly present the cheque once again in the bank. If the cheque gets returned again give notice within 30 days and proceed. In such cases foolish lawyers often spoil the case by giving defective notice. For instance when you give notice you should not make any reference to your presentation of the cheque earlier. Never use too many words or too many narrations in the notice.