Understanding Cheques and Cheque Bounce in India
What is a Cheque? A cheque is a financial instrument used widely in business and finance. It is a type of bill of exchange drawn on a specific bank and payable on demand by the person who issued it, known as the ‘drawer.’ The person or entity to whom the cheque is issued is called the ‘drawee.’
What is Cheque Bounce? A cheque is considered “bounced” or dishonoured when the bank returns it unpaid. This can happen for several reasons, including:
- Insufficient funds in the drawer’s account
- Signature mismatch
- Overwriting on the cheque
- Suspected fraud or forgery
When a cheque bounces, the bank issues a ‘Cheque Return Memo’ to the payee, explaining the reason for non-payment. This memo serves as proof that the cheque was dishonoured.
Legal Implications of Cheque Bounce
In India, cheque bouncing is a criminal offense under Section 138 of the Negotiable Instruments Act, 1881. This law ensures trust in banking operations and the credibility of cheques in business.
If a cheque is dishonoured, the payee or the holder in due course can legally demand payment. If the drawer does not pay within the stipulated time, the payee can file a criminal complaint against the drawer. Additionally, the aggrieved party can file a civil suit to recover the cheque amount along with litigation costs and interest.
How to Handle a Cheque Bounce Case
Handling a cheque bounce case involves understanding the legal procedures. It is advisable to consult an expert lawyer for cheque bounce cases. The complaint must include all relevant evidence, such as:
- The original bounced cheque
- The cheque return memo
- The demand notice sent to the drawer
- Receipts of the legal notice and other relevant documents
The complaint should be filed in a competent court within one month of the cause of action.
Consequences of Cheque Bounce
The consequences of a cheque bounce in India are severe. If found guilty, the accused can face:
- A monetary penalty up to double the cheque amount
- Imprisonment for up to two years
- Both a fine and imprisonment
Additionally, a cheque bounce can negatively affect the defaulter’s credit score, making it difficult to obtain loans or credit cards in the future.
Recent Amendments to the Negotiable Instruments Act
The Negotiable Instruments Act of 1881 has been amended to address delays in resolving cheque dishonour cases. These amendments strengthen the credibility of cheques and support trade and commerce by allowing financial institutions to continue extending credit to productive sectors of the economy.
Key Amendment: Section 143-A Section 143-A allows courts to order the drawer to pay interim compensation to the complainant. This compensation can be up to 20% of the cheque’s value during the proceedings under Section 138 of the Act. The compensation must be paid within 60 days of the order. If the drawer is convicted, this amount is deducted from the fine imposed or any compensation ordered under Section 357 of the Code of Criminal Procedure, 1973.
Recovery of Interim Compensation The interim compensation can be recovered by attaching and selling the drawer’s movable property or by directing the district collector to recover it as arrears of land revenue. If the drawer is acquitted, the court will order the complainant to repay the interim compensation with interest at the prevailing bank rate.
Conclusion
Understanding the laws related to cheques and cheque bounce in India is crucial for anyone involved in financial transactions. Seeking the guidance of a qualified lawyer is recommended to navigate these complex issues and ensure your rights and obligations are protected.