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Do’s & Dont’s in case of a Cheque Bounce

May 2, 2018 by rajtechnews

Introduction: What is a cheque?

A Cheque is a bill of exchange drawn upon a specified banker and is payable only on demand. Legally,
the person who has issued the cheque is called as ‘drawer’ and the person in whose favour the cheque
is issued is called as ‘drawee’. The following are the essential characteristics of a cheque:

It has to be in writing

It has to be an unconditional order

Banker has to be specified

Payment should be directed to a specified person

It should be payable on demand

It should be for a specific sum of money

Should have the signature of the drawer

What is cheque bounce/dishonour of cheque?

A cheque is said to be dishonoured or bounced when it is presented for payment to a bank but it is not
paid because of some reason or the other. The following are some of the reasons why a cheque is
generally bounced :

Signature is not matching

There is overwriting in the cheque

Cheque was presented after lapse of three months, i.e. after the cheque has expired

Account was closed

Payment stopped by the account holder

Opening balance insufficient

Disparity in the words and figures mentioned on the cheque

In case the cheque is issued by a company, the same does not bear the seal of the company

Mismatch in account number

In case of joint account where both signatures are required, only one sign is there

Death of the customer

Insolvency of the customer

Insanity of the customer

Crossed cheque

When a cheque is issued against the rules of trust

Alteration in cheque

Doubt in genuineness of the cheque

Presented at the wrong branch

Crossing limit of overdraft (OD)

Legal Remedies available in case your cheque is bounced

Cheque bounce is a criminal offence in India, covered under section 138 of the Negotiable Instruments
Act. The following information will act a useful guide in what steps can be undertaken in case your
cheque is bounced:

Step 1: Demand Notice:

Once the cheque has been returned by the bank, then before filing a legal complaint against the drawer,
you must first send a demand letter/ legal notice to such drawer within a period of 30 days from the
date the cheque has been returned to you by the bank. The letter must demand the amount from the
drawer and also the legal action that can be initiated against him under the Negotiable Instruments Act
in case the amount is not paid within a stipulated time period (usually 15 days).
Even though there is no prescribed format for this notice, its purpose of demanding payment and
informing the issuer that s/he will be prosecuted in case payment is not made should be highlighted
very clearly. Further, proof of delivery of such letter should be preserved carefully.

Demand letter can be sent by the complainant her/himself. However, it is advisable to get the draft
vetted by a cheque bounce lawyer before sending it to the person concerned.

The following information should be stated clearly in the demand notice:

A statement that the cheque was presented within its period of validity

Statement of debt or legally enforceable liability

Information regarding dishonour of cheque as given by the bank

Demanding the issuer to pay the amount due within 15 days of receiving such notice

Step 2: Drafting of Complaint:

If the drawer has not replied to your demand notice within a period of 15 days from the date of the
delivery of the demand letter or has refused to pay your amount, then the next option available in such
a case is to file a complaint in court within a stipulated time period of 30 days. Before filing a legal
complaint, it is important to understand that which court should you approach in such cases. You can
file the complaint in a court within whose local limits of jurisdiction any of the following incidents have
taken place:

Where the cheque was drawn

Where the cheque was presented

Where the cheque was returned by the bank

Where the demand notice was served by you

You must have all the following documents:

Complaint

Oath letter
Photocopy of all the documents such as cheque, memo, notice copy, and acknowledgement receipts

Step 3: Court Process for filing the case:

Amount on cheque Court fee

Rs. 0 to Rs. 50,000/- Rs. 200

Rs. 50,000/- to Rs. 2,00,000/- Rs. 500

Above Rs. 2,00,000/- Rs. 1000

Memo of Advocate is essential at the time of filing of the suit along with signatures of the complainant

After the case is filed in the court, all documents are cross-checked by Judicial Magistrate First Class, so
original documents such as original cheque (bounced), original memo, a copy of the notice, receipt of
the post office, receipt of U.P.C., acknowledgement receipt, are required at the time of cross-checking

The period of limitation is also verified at this stage

The Process Form, also known as the Bhatta, is filed by the complainant or lawyer, along with the
address of accused

The court then issues summons to accused to appear in the court on the specific date

If the accused does not appear in court on the date of hearing, the court can also issue a bailable
warrant on the request of the complainant

It the accused still does not appear before the court, the court may issue a non-bailable warrant of
arrest

Important things to be kept in mind

A delay in filing the complaint after the lapse of 30 days may be excused by the magistrate only in
exceptional circumstances

Dishonour of a cheque due to stop payment is also covered under Section 138 of the NI Act

Presentation of the cheque at the request of the drawer after the demand notice has been sent and the
consequent dishonour of the cheque will not mean that the drawer’s time limit under the notice has
increased

A cheque issued as a gift/donation/any other obligation, will not be covered under Section 138 of the
Act. For this section to apply, the cheque has to carry a legal obligation
A cheque expires after three months from the date on which it is issued

Learn what should be & what shouldn’t be done in case of a cheque bounce with this complete guide for
Indian Laws on cheque bounce