Cheque Bounce Cases in India: Legal Provisions and Remedies

A cheque bounce, also known as dishonor of cheque, occurs when a cheque presented for payment is returned by the bank due to insufficient funds, mismatched signatures, or other reasons. In India, cheque bounce cases are governed by the Negotiable Instruments Act, 1881, particularly under Section 138, which prescribes penalties and legal recourse for dishonored cheques.

Common Reasons for Cheque Bounce

  1. Insufficient Funds: The account holder does not have enough balance to cover the cheque amount.
  2. Signature Mismatch: The signature on the cheque does not match the bank’s records.
  3. Post-Dated Cheque: The cheque is presented before the due date.
  4. Overwriting or Alterations: Any unauthorized changes on the cheque can lead to rejection.
  5. Account Closure: If the issuer has closed the account linked to the cheque.
  6. Payment Stop Instruction: If the drawer has instructed the bank to stop payment.
  7. Technical Errors: Such as mismatched MICR code, damaged cheque, or incorrect details.

Legal Provisions Under Section 138 of the Negotiable Instruments Act, 1881

Section 138 provides the following legal framework for cheque bounce cases:

  • The cheque must have been issued for the discharge of a legally enforceable debt or liability.
  • The cheque should have been presented within 3 months from the date of issuance.
  • If dishonored, the payee must send a demand notice to the drawer within 30 days from the date of receiving the dishonor memo from the bank.
  • The drawer must make the payment within 15 days of receiving the notice; failure to do so allows the payee to initiate legal proceedings.

Steps to Take in Case of Cheque Bounce

  1. Obtain Dishonor Memo: Collect a dishonor memo from the bank stating the reason for the bounce.
  2. Send Legal Notice: A formal demand notice must be sent to the issuer within the stipulated period.
  3. File a Complaint: If the issuer fails to respond, a complaint can be filed in the appropriate magistrate court within 30 days of the notice expiry.
  4. Court Proceedings: The court will summon the issuer, and if found guilty, penalties will be imposed.

Penalties for Cheque Bounce

Under Section 138, the penalties include:

  • Imprisonment: Up to 2 years or
  • Fine: Up to twice the cheque amount, or both.
  • Civil liability to recover the due amount through civil suits.

Defenses Available for the Drawer

  1. The cheque was not issued for a legally enforceable debt.
  2. The cheque was issued under coercion or fraud.
  3. Post-dated cheque presented before the due date.
  4. The notice was not served within the prescribed time.

Preventive Measures to Avoid Cheque Bounce

  • Ensure adequate balance before issuing a cheque.
  • Maintain proper records of issued cheques.
  • Avoid overwriting and ensure correct details.
  • Regularly monitor bank account statements.
  • Use digital payment methods to reduce dependency on cheques.

Conclusion

Cheque bounce cases can have severe legal and financial repercussions. Individuals and businesses should ensure careful handling of cheque transactions and seek legal assistance in case of disputes. Staying informed about cheque-related regulations and preventive measures can help avoid unnecessary legal complications.