Cheque: Bouncing: Remedies
Cheque bouncing as Law and history:
Until 1989, failure to discharge the liability of a payment through cheque was only a civil liability. By amending Section 138 of Negotiable Instruments Act 1881, the civil liability was converted into a criminal liability.
The objective of introducing Section 138 was to encourage the culture of using cheques and enhance the credibility of the instrument. It was also done to repose faith in banking operations by making the issuer of the cheque liable for penalties in case it is dishonoured. Due care has also been taken to prevent harassment of honest drawers of cheque. Prior to this, the drawer of a dishonoured cheque could only be criminally prosecuted under Section 420 of the Indian Penal Code for offence of cheating. The introduction of Section 138 initially enhanced the credibility of the usage of cheques but by the passage of time it has become a very hectic exercise for the judiciary since the pendency has increased to a great extent and these cases have given a good amount of portion in this. The Legislature has introduced various amendments time and again to make the law more stringent and safeguard payment by cheque.
Cheques Bouncing as an offence:
A bouncing of cheque is an offence under Section 138 of the Negotiable Instruments Act, 1881 (“Act”) which is punishable with a fine which can extend to twice the amount of the cheque or imprisonment for a term not more than two years or both. When the payee presents a cheque to the bank for payment, and the cheque is returned unpaid by the bank with a memo of insufficient funds, then the cheque is said to have bounced.
Reasons of Cheque Bounce
Insufficient account balance –
Stop Payment–
Expired validity of cheque –
Overwriting –
Damaged cheque –
Signature mismatch –
Mismatch of amounts or digits –
Remedies Against Cheque Bounce
Resubmission of cheque:
When the cheque is bounced due to overwriting, mismatch of signature, mismatch of the figures and words of the cheque amount or damaged cheque, the payee can ask the drawer to submit another cheque rectifying the mistake. If the drawer does not agree to submit another cheque, then the payee can initiate civil action against the drawer to pay the cheque amount due to him and not for cheque bounce.
Notice under Section 138 of the NI Act:
A mandatory requirement of law is to issue “A cheque bounce notice” under Section 138 of the Negotiable Instruments Act when a cheque bounces due to insufficient funds in the drawers’ account for making the payment of the cheque amount. If the cheque bounces for any other reason other than insufficient funds, the cheque bounce notice cannot be issued.
Issuance of Cheque Bounce Notice:
When the cheque bounces due to an insufficient amount, the first step is to demand the payment of the amount by issuing a cheque bounce notice in writing by registered post under the Negotiable Instruments Act. The payee can issue a cheque bounce notice within 30 days of an intimation sent by the bank along with the bounced cheque stating that the bank cannot make the cheque payment due to an insufficient amount.
After issuance of the cheque bounce notice, the payee must give the drawer 15 days time period from the receipt of the cheque bounce notice to pay the cheque amount. If the drawer still does not pay the cheque amount even after the expiry of 15 days time period, then legal action can be initiated by the payee against the drawer within 30 days of the expiry of 15 days.
The cheque must be issued for the discharge of a legally enforceable liability or debt to constitute an offence under the Act.
Cheque Bounce Notice
After the expiry of 15 days of issuing the cheque bounce notice, the payee can initiate legal action against the drawer. The payee should register a complaint under Section 138 of the Act. Under Section 138 of the Act, the offence of cheque bounce is a criminal offence for which the payee can initiate a criminal suit. The payee must file the complaint against cheque bounce before the Magistrate within 30 days of the expiry of 15 days of the issuance of the cheque bounce notice.
Where to file a case for Cheque Bounce
The payee can file the complaint before the Magistrate in any of the following places:
ð Where the cheque was drawn,
ð Where the cheque was presented for payment,
ð Where the payment had to be made,
ð Where the cheque is dishonoured, or Where the demand notice was served.
The cheque bounce complaint has to be filed before the “Metropolitan Magistrate” if the complaint for the cheque bounce falls in any of the Metropolitan Cities. If the suit for cheque bounce falls in any other cities, then the complaint must be filed before the “Judicial Magistrate”.
Process of Cheque Bounce Complaint:
a. Filing a complaint before the Magistrate after the expiry of 15 days of receipt of cheque bounce notice by the drawer.
b. The payee/complainant has to appear before the court and provide the details of the case. If the Magistrate is satisfied with the complainant’s statement, he will issue summons to the drawer for appearing before the court.
c. The drawer will appear and accept or deny the facts stated by the complainant. If the drawer denies the complaint, then the court will proceed with the criminal trial of the case.
d. The drawer/accused will file his statement, evidence and arguments of both sides will be presented to the court.
e. If the court finds the drawer guilty of the offence of cheque bounce, the court will pass a judgement of conviction against the drawer for the offence of cheque bounce.
f. The punishment for cheque bounce is imprisonment for a term not more than two years or a fine that can extend to twice the amount of the cheque or both.
The cheque bounce notice can be issued against the company, and a criminal case can be initiated against a company when the company issues the cheque, and it bounces due to an insufficient amount under Section 148 of the Act. When a criminal suit is initiated under Section 148 of the Act, the company and its directors will be punished for the offence of cheque bounce. Rest of the provision of section 138 NI Act would follow in the case of companies also.
Recent Amendment to pay compensation pending trial:
Section 143A: Under this Section, the Court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant which shall not exceed 20% of the amount of the cheque.
Section 148- An appeal by the drawer against the conviction under Section 138, the Appellate Court may order the appellant to deposit such sum which shall be minimum of 20% of the fine or compensation awarded by the trial court.
The interim compensation must be paid within 60 days from the date of the order or within such further period within such period not exceeding 30 days as may be directed by the Court.