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A cheque is a financial instrument that plays a crucial role in the business and financial world. It is a form of bill of exchange, and is drawn upon a specified banker, and is payable only on demand by the applicant. In legal terms, the individual or organisation issuing the cheque is known as the ‘drawer’, and the individual or organisation in whose favour the cheque has been issued is known as the ‘drawee’.
A cheque is said to be bounced or dishonoured when an unpaid cheque is returned by the bank. This can occur due to various reasons, such as insufficiency of funds in the account of the ‘drawer’, a mismatch of signatures, overwriting on the cheque, or if there is a doubt of fraud or forgery.
When a cheque is bounced, the bank issues a ‘Cheque Return Memo’ to the payee mentioning the reason for non-payment. This memo is an important document as it is proof that the cheque has been dishonoured.
In India, a cheque bounce is considered a criminal offence, as per Section 138 of the Negotiable Instruments Act, 1881. This law has been put in place to instil faith in the efficacy of banking operations and the credibility of cheques in the business community across the country.
If a cheque is dishonoured, the payee, or the holder in due course, may legally demand payment. If the drawer fails to make the payment within a stipulated time period, the payee may file a criminal complaint against the drawer.
In addition to this, the aggrieved party can also file a civil suit for recovery of the cheque amount along with the cost of litigation and interest.
Handling a cheque bounce case requires a thorough understanding of the legal procedures involved. It’s advisable to prepare the cheque bounce complaint with the help of an expert lawyer for cheque bounce cases.
The complaint must submit all the important evidences such as the original cheque that was returned by the bank, the cheque return memo, demand notice sent against non-payment or cheque bounce, receipts of legal notice and other relevant documents.
The complaint should be filed in a court of competent jurisdiction within one month of the date of cause of action.
The consequences of cheque bounce are severe in India. Once the trial is over and if the accused is found guilty, they can be punished with a monetary penalty which can be upto double the cheque amount or be punished with imprisonment which may extend to two years or both.
Moreover, a cheque bounce case can also lead to a reduction in the credit score of the defaulter, making it difficult for them to avail loans or credit cards in the future.
The Negotiable Instruments Act of 1881 has been recently amended to deal with the issue of undue delay in final resolution of cheque dishonour cases. The amendments have strengthened the credibility of cheques and helped trade and commerce in general. The Negotiable Instruments Act of 1881 has been recently amended with a view to deal with the difficulty of undue delay in final resolution of cheque dishonour cases in order to provide relief to payees of dishonoured cheques and to discourage frivolous and unnecessary litigation which might economize and time. Further, the amendments have strengthened the credibility of cheques and helped trade and commerce generally by allowing lending institutions, including banks, to still extend financing to the productive sectors of the economy.
One of the key amendments is the insertion of Section 143-A in the Act, which allows the court to order the drawer of the cheque to pay interim compensation to the complainant. The Amendment Bill inserts Section 143-A within the Act of 1881, making provision for the payment by the drawer of the dishonoured cheque to the payee thereof of interim compensation of an amount not exceeding 20% of the worth of the instrument during the pendency of proceedings for the offence of dishonour under Section 138 of the Act (a) in a summary trial or a summons case, where the drawer pleads not guilty to the accusation made in the complaint; and (b) in the other case, upon framing of charge.
The said interim compensation got to be paid within a period of 60 days from the date on which the order thereto effect is formed. The interim compensation so recovered shall be deductible from the quantity of fine imposed under Section 138 by the Magistrate upon conviction of the drawer or any compensation directed to be paid under Section 357 of Code of Criminal Procedure, 1973. Section 138 of the Act of 1881 provides for imposition of a sentence of imprisonment not exceeding a period of two years or fine extending to twice the amount of the dishonoured cheque or even both. The said amount of interim compensation may also be recovered within the manner provided under Section 421 of Cr. P. C – by way of attachment and sale of any movable property of the drawer or a warrant to the Collector of the concerned district to recover an equivalent as arrears of land revenue from the movable or immovable property of the drawer. If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the quantity of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the start of the relevant year.