Abstract
A cheque bounce occurs when a cheque presented by an individual or company to another party is returned by the bank unpaid due to insufficient funds in the account, a mismatch in the signature, or any other reason that renders the cheque invalid. This can result in legal action being taken against the person who issued the cheque, as well as penalties and fees imposed by the bank. A bounced cheque can have serious consequences, including damage to the issuer’s credit score and reputation, as well as potential criminal charges in some jurisdictions. It is important for individuals and companies to ensure they have sufficient funds in their accounts before issuing cheques to avoid a cheque bounce.
Keywords
Cheque, Section 138 of N.I, Negotiable Instrument, Credit Score, Criminal Charges, Insufficient funds, Overdrawn account, Bad cheque.
Introduction
A cheque bounce, also known as a bounced cheque or a returned cheque, occurs when a cheque that a person has written is not honored by the bank upon presentation for payment. This can happen for a variety of reasons, such as insufficient funds in the account, a closed account, or an error in the details on the cheque. When a cheque bounces, it is typically returned to the payee or the recipient of the cheque by the bank with a reason for the bounce, such as “insufficient funds.” The payee may then choose to resubmit the cheque for payment, but the issuer of the cheque may face penalties and fees for the bounced cheque, such as a bounced cheque fee from the bank or legal action from the payee. Cheque bouncing is illegal in many countries and can result in legal consequences for the issuer of the cheque. It is important to ensure that there are sufficient funds in the account and that the cheque details are correct before issuing a cheque to avoid cheque bouncing.
Cheque Bouncing
Section 138 of the Negotiable Instruments Act states that a cheque will bounce if there are no sufficient funds in the bank, if there is a difference in the signature, etc. Cheque bouncing is a criminal offence in India and a person can be imprisoned for up to 2 years and would need to pay twice the amount stated in the dishonoured cheque. Furthermore, in Section 143A, it is clear that an interim compensation shall be given to the complainant for the issues caused due to the Cheque Bounce.
Circumstances of Cheque Bounce[1]
1. Inconsistency in Signature – If the drawer’s signature is unclear or absent or doesn’t match the one within the bank’s data, the cheque will bounce.
2. Insufficient balance in account – If there’s not Sufficient balance within the drawer’s account to form the payment of the cheque, the bank will reject and return the cheque to the payee with a memo stating insufficient funds to pay the cheque amount.
3. Mismatch of amounts or digits – If the cheque amount mentioned in words and figures doesn’t match, the cheque will bounce.
4. Overwriting – If the signature of the drawer or cheque amount or the other statement has been overwritten on the cheque, the cheque bounces for overwriting.
5. Defaced cheque (Damaged Cheque) – If a cheque is broken or disfigured and therefore the details aren’t visible or have marks or stains, the cheque will bounce.
6. Expired validity of cheque – Once the drawer issues the cheque, it must be presented for payment within three months. The cheque expires if it’s not presented to the bank within three months. If the expired cheque is given to the bank, it bounces.
Cheque Bounce Chronology[2]
- If a cheque bounces, the primary step is going to be taken by the drawee’s bank which notifies the payee by issuing a cheque return memo listing the explanations behind the cheque bounce.
- The bank sends the dishonoured cheque and therefore the memo to the payee back. The payee is allowed to return the cheque in three months from the date written within the cheque.
- First and foremost, the payee has got to issue a notice to the issuer/drawer thirty days after receiving the cheque bounce notice.
- Secondly, the payee has got to state clearly within the notice that the stipulated amount must be paid to them 15 days after receiving the receipt of the notice.
- If the drawer fails to stick to those conditions and doesn’t refund the cash within 30 days, the payee has the right to issue a criminal complaint against the drawer.
- If you’re too late in filing the complaint, however, your case won’t tend any attention within the court if your limitation period is over.
- They’re going to only review the case if you’ll prove that you simply had a legitimate reason for the delay.
- The court will send summons to the drawer and if they’re found guilty, they could be sentenced to 2 years in prison or made to pay twice the initial amount to the payee.
- The drawer also can appeal within the Sessions Court within thirty days of the order of the inferior court. The drawer also has the extra option of filing a case under section 420 of the Indian legal code for cheating. you furthermore may need to realize the Cheque Bounce Charges Online.
Consequences of Cheque Bouncing[3]
The issuer is going to be responsible for the penalty on the dishonoured cheque, supported the rationale for the bounce. Dishonouring a cheque due to insufficient funds may be a Criminal Offence under The Negotiable Instruments Act, 1881.
Charges for issuing a cheque against a checking account with insufficient money must be paid by the payer.
The payee has 3 months from the date of payment to sue the payer or enable the payer so as to reissue a cheque.
For granting a dishonourable check, the payer may face a maximum of two years in jail.
Banks also will charge you a penalty fee if a cheque is returned to you unpaid. The penalty is different counting on the bank. For the sums of the issued dishonoured check, banks may have different penalty categories.
Cheque Bounce Remedies
- Cheque Resubmission
- Cheque Bounce Notice
Conclusion
To avoid cheque bouncing, it is important to ensure that there are sufficient funds in the account before issuing a cheque. In case of any uncertainty, alternative payment methods such as electronic transfers or cash should be considered. It is also important to ensure that the recipient’s details are accurate and up-to-date. In case a cheque bounces, both the payer and the recipient should take appropriate actions to resolve the issue. The payer should immediately arrange for sufficient funds to be deposited into the account to cover the cheque, and the recipient should notify the payer of the bounced cheque and request a replacement payment. If the issue cannot be resolved amicably, legal action may be necessary. This can result in financial losses, legal troubles, and damage to one’s credit score. In conclusion, cheque bouncing is a serious matter that can have far-reaching consequences. It is essential to take appropriate measures to prevent cheque bouncing and to resolve any issues that may arise in a timely and responsible manner.
This article is written by Yash Tated, Adhia College of Law, Mumbai, 2nd Year student (3 years) during his Internship at LeDroit India.
[1] https://vakilsearch.com/blog/what-happens-if-cheque-bounces/
[2] https://vakilsearch.com/blog/penalty-and-punishment-for-cheque-bounce/#:~:text=Cheque%20bouncing%20is%20a%20criminal,due%20to%20the%20Cheque%20Bounce.
[3] https://vakilsearch.com/blog/what-happens-if-cheque-bounces/
