What is a cheque?
A cheque is a negotiable instrument, which means, it’s legal document guaranteeing the payment of a specific amount of money, either on demand or at a time defined in the cheque.
Legally, you need to know a few terms:
- Drawer, is the person writing the cheque
- Payee, is the person in whose favor the cheque is written
- Drawee, is the bank of the Drawer who is going to pay the money
Payee is the only person who can negotiate the cheque.
Whether you are issuing a cheque or receiving a cheque, always ensure that the check is crossed and account payee to avoid its misuse.
Cheque misuse example could be, A issuing cheque to B, who in turn, gives that cheque to C. If the cheque is crossed and account payee, cheque payment could be made only to the bank account of B. Hence, B can’t give the cheque to C.
What is a bounced cheque?
Depending on timeline set in the cheque, Payee can deposit the cheque to his bank, which in turn, would send the cheque to the Drawee bank for payment.
In case there is insufficient fund in Drawer’s account, the Drawee bank will return the check i.e. dishonor the check, issuing a ‘Check Return Memo’ to the Payee’s bank, who gives the dishonored cheque and the memo to the Payee.
This is called a cheque bounce or cheque dishonor.
The Drawee bank may charge the Drawee some fee for bouncing the cheque.
What happens if cheque bounces in India?
As soon as the check bounces, the Drawee bank will return the check i.e. dishonor the check, issuing a ‘Check Return Memo’ to the Payee’s bank, who gives the dishonored cheque and the memo to the Payee.
The Payee can resubmit the cheque within 3 months for payment if he believes that the cheque will be honored the second time.
However, if the Drawer fails to make a payment, then the Payee has right to file a legal case against the Drawer.
What do you do if a check bounces?
The dishonor of check is a criminal offense. As per Section 138 of the Negotiable Instruments Act, the drawer could be jailed for up to two years or could get a monetary penalty or get both the punishments.
If your check has been bounced, you can start the legal process against the person issuing the check i.e. the drawer. Preforming following steps in an appropriate and timely manner will ensure that you are able to recover your money.
The legal proceeding can be in two steps:
Step 1: Sending Demand Notice for Cheque Bounce
You should send a demand notice to the drawer of the check, stating that you would start legal proceeding under the Negotiable Instrument (NI) Act, if he doesn’t pay the amount due within 15 days of receiving the notice.
If the drawer of the check is an individual, the proceeding would happen under Section 138 of the NI Act. On the other hand, if the drawer is a company, its managing director can be personally prosecuted under Section 141 of NI Act.
You should send this demand notice within 30 days from the date you received notification from your bank that the check has bounced.
The demand notice should contain the following information:
- Statement that you presented the check within its period of validity.
- Statement of debt or legally enforceable liability i.e. purpose for which the check was issued.
- Information about the reason of dishonor of cheque (check the memo of the bank returning the cheque for this – most likely this would be insufficient fund).
- Tell the drawer to pay the amount due.
- Write that you are giving the drawer 15 days to pay up or you will initiate legal proceeding.
As this demand notice will become critical during the trial, you are better off to get this notice vetted by a qualified lawyer, which should not take more than a couple of hundred rupees.
You can send this notice via speed post, which is preferable over courier, and keep the receipt as an evidence.
Usually, the threat of prosecution through demand notice results in prompt settlement. In that case, the drawer may ask you to deposit the cheque again or offer an alternate payment method.
Step 2: Filing Criminal Case for Check Bounce
By the 15th day of sending demand notice as explained above, if you have not received any payment, you can start the legal proceeding.
You can file a criminal complain under Section 138 of the Negotiable Instrument Act, within 30 days of sending the demand notice, before a magistrate.
You can file complain at any of the following places:
- where the cheque was drawn
- where the cheque was presented
- where the cheque was returned by the bank, and
- where the demand notice was served by you
On receiving the complaint, along with supporting documents, the court will issue summons and hear the matter.
If found guilty, the Drawer could be jailed for up to two years or could get a monetary penalty, which could be twice the amount of the check, or get both the punishments.
The Drawer’s bank may also stop the check book facility to him and close the account for repeat offense of bounced checks.
Within 15 days of sending the demand notice, the Drawer may request you to deposit the cheque again. If the check is dishonored yet again, you don’t need to give an additional notice of 15 days but proceed to filing a criminal complain before a magistrate.
In case the Drawer has put up stopped payment, that is also covered under Section 138 of the NI Act.
What happens when you bounce a check?
You need to understand that bouncing a check is a criminal office.
You may have to pay a penalty of twice the check amount or you could be jailed for up to two years or both. A conviction can happen within six months.
Currently check bounce is a bailable offense. However, please be mindful that Indian Government is already considering making check bounce a non-bailable offense i.e. you may have to be in jail while the trial is on-going.
Hence, your best way out is to settle you check bounce. As soon as you receive information about bouncing of your check – by your bank or by the Payee – please settle it.
You may put sufficient money in your account and ask the Payee to deposit the check again. Or, you may suggest some alternate payment method.
In some cases, you may be able to negotiate a settlement with some relief for yourself.
Whatever you do, it’s important that you settle your check bounce.
Unless, of course, if you believe that the check you issued is some gift, donation or for something that is not legally enforceable. You should reach-out to a qualified lawyer for an appropriate advise.
Check bounce can affect your CIBIL score, limiting your ability to get loans in future. Also, your bank may charge you some fee for check bounce and may stop issuing cheque book facilities for repeated offense.
What documents are required for filing a check bounce case?
You need following documents to file a cheque bounce case :
- Original cheque and return memo
- Copy of notice and original postal receipts
- Evidence affidavit
What action can be taken against check bounce?
Your legal options for check bounce are detailed above.
In addition, there are certain finer points that you should keep in mind for a stronger legal case against the drawer, who wrote the check:
- The person drawing the check should own the bank account against which he has issued the check
- The check should have been issued towards some debt or legal liability
- the drawer cannot be prosecuted for the check issued as a gift, donation, or any other obligation that is not legally enforceable
- The drawer cannot be prosecuted if the validity of cheque is over, i.e. it it issued more than three months ago
- gift, donation, or any other obligation that is not legally enforceable
- The check should have been returned by the bank because of insufficient fund in the account
- You have to give payee an opportunity to pay the money immediately before filing a case against him
- You should file the complain within 30 days of bouncing of the cheque. Otherwise, the jurisdictional magistrate court may refuse to entertain your complain on the grounds of delay.
- In case you missed filing the case within 30 days, you can make an application before the jurisdictional 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 you had sufficient cause for not making the complaint within the prescribed period.
Why does a check bounces?
Each day around 0.5% of all cheques bounces i.e. are returned unpaid.
The typical reason for bouncing of cheques are:
- A Drawer i.e. the person issuing the cheque doesn’t have enough month in the bank to pay the cheque
- The bank spots a fraudulent cheque. For example, the Drawer’s signature on the cheque doesn’t match with the specimen that the bank is having
What are the charge for cheque bounce?
If you cheque bounced, a bank would charge you around Rs 100 to Rs 150 as penalty, depending on whether the cheque is deposited locally or outstation.
The bank may also charge you other fees such as fee for returning the cheque by courier, service charges etc.
For a current account, the charge for check bounce may rage from Rs 300 to Rs 750, depending on the bank.
Can you redeposit a check that bounces?
Yes you can. Before redepositing please ensure from the Drawer of the check that he has sufficient amount in his bank account to make payment.
What is Section 138 for cheque bouncing?
The Negotiable Instruments Act, 1881 is applicable for the cases of dishonor or bouncing of cheque.
According to Section 138 of the Act, the dishonor of cheque is a criminal offense and is punishable by imprisonment up to two years or with monetary penalty up to twice the amount of the check or with both.
Do you need help in taking action against check bounce?
Do you need help in taking appropriate legal action against a check bounce?
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