Cheque Dishonour and Its Legal Implications: A Focus on Bangladesh

Introduction?

In Bangladesh, as in many other countries, the dishonour of a cheque can be a significant financial and legal issue. Cheques are widely used for both personal and business transactions, and their dishonour can lead to disputes and legal complications. This writing explores the concept of cheque dishonour in Bangladesh and examines the legal remedies available to those affected.?

Understanding Cheque Dishonour?

A cheque is a negotiable instrument that represents a promise from the drawer (the person who writes the cheque) to pay a specified sum of money to the payee (the person or entity to whom the cheque is addressed) upon presentation.??

Cheque dishonour refers to the situation when a cheque presented for payment is not honored by the bank. This means that the bank refuses to pay the amount specified on the cheque. The dishonour of a cheque can occur for several reasons, and it usually leads to legal and financial consequences for the drawer (the person who issued the cheque) as well as potential issues for the payee (the person or entity to whom the cheque is addressed).?

Common Reasons for Cheque Dishonour?

1. Insufficient Funds: This is the most common reason for a cheque being dishonoured. It occurs when the drawer’s bank account does not have enough funds to cover the amount of the cheque.?
2. Signature Mismatch: If the signature on the cheque does not match the signature the bank has on file for the drawer, the cheque may be dishonoured.?
3. Post-Dated Cheques: A cheque dated for a future date should not be presented for payment before the date written on it. If a post-dated cheque is presented prematurely, it may be dishonoured.?
4. Stale Cheques: A cheque is considered stale if it is presented for payment after six months from the date written on it. Stale cheques are usually not honored by banks.?
5. Stop Payment Instructions: If the drawer instructs the bank to stop payment on a cheque, it will be dishonoured when presented.?
6. Alterations: If the cheque has been altered in any way (e.g., changes to the amount or payee) without proper authorization or confirmation, it may be dishonoured.?
7. Account Closed: If the drawer’s bank account has been closed before the cheque is presented, the cheque will be dishonoured.?
8. Technical Errors: Errors such as discrepancies in the amount written in words and figures or missing information can also lead to dishonour.?

Legal Framework for Cheque Dishonour in Bangladesh?

In Bangladesh, cheque dishonour is primarily governed by the Negotiable Instruments Act, 1881 and various amendments to it. This legislation provides the legal framework for the regulation of negotiable instruments, including cheques.?

Key Provisions?

1. Section 138: This section deals with the offence of dishonour of a cheque due to insufficient funds or if it exceeds the amount ordered by the drawer. It establishes that if a cheque is dishonoured, the drawer can be held criminally liable.?
2. Section 139: This section presumes that a holder of a cheque received it in good faith and for consideration, shifting the burden of proof to the drawer to demonstrate otherwise.?
3. Section 142: This section stipulates the time limit within which a complaint regarding dishonoured cheques must be filed, generally within one month of receiving the notice of dishonour.?
4. Section 143: Provides for the summary trial of cases involving cheque dishonour to ensure expeditious justice.?

Consequences of Cheque Dishonour?

• Financial Implications: The payee does not receive the funds they were expecting. This can cause financial inconvenience or harm, especially in business transactions.?

• Legal Consequences: In many jurisdictions, including Bangladesh, dishonouring a cheque can lead to legal action. The drawer may face criminal charges or civil lawsuits depending on the reason for dishonour and the actions of the parties involved.?

• Damage to Credit and Reputation: Frequent dishonour of cheques can damage the drawer's credit rating and reputation, making it difficult to obtain credit or engage in financial transactions in the future.?

• Penalties and Fines: The drawer may be required to pay additional penalties, legal costs, and interest on the dishonoured amount, further increasing the financial burden.?

Legal Remedies for Cheque Dishonour?

When a cheque is dishonoured, the aggrieved party has several legal remedies available to them:?

1. Criminal Remedy?

Under Section 138 of the Negotiable Instruments Act, dishonour of a cheque is considered a criminal offence if the cheque is returned due to insufficient funds or exceeding the amount. To pursue a criminal remedy, the following steps must be followed:?

Issuance of Notice: The payee must send a written notice to the drawer within 30 days of receiving the information of dishonour from the bank. This notice should demand payment of the cheque amount within 15 days of receiving the notice.?

Filing a Complaint: If the drawer fails to make payment within the stipulated time frame, the payee can file a criminal complaint with the magistrate's court under Section 138. The case will be subject to a summary trial under Section 143.?

Penalties: If convicted, the drawer may face imprisonment for up to two years or a fine that can extend to twice the amount of the cheque or both.?

2. Civil Remedy?

In addition to criminal proceedings, the aggrieved party can pursue civil remedies. These remedies typically involve filing a suit for recovery of the cheque amount. The process involves:?

Filing a Suit: A civil suit can be filed in the civil court for the recovery of the cheque amount along with any additional damages or interest. This is usually pursued under the principles of contract law.?

Presentation of Evidence: The payee must present evidence including the dishonoured cheque, the notice sent to the drawer, and proof of the drawer’s failure to pay.?

Judgment and Execution: If the court rules in favor of the payee, it may order the drawer to pay the cheque amount along with interest and legal costs. The payee can then seek execution of the judgment through attachment of assets or other means.?

3. Negotiation and Settlement?

Often, cheque dishonour cases can be resolved through negotiation or settlement. Parties involved can agree to:?

Payment Plan: The drawer may agree to pay the amount in installments or as a lump sum to avoid further legal complications.?

Compromise Agreement: Both parties may enter into a compromise agreement, where the drawer might settle for a lesser amount, and the payee agrees to withdraw the legal action.?

Prevention and Best Practices?

To prevent cheque dishonour and its associated issues, the following best practices can be adopted:?

Maintain Adequate Funds: Ensure that there are sufficient funds in the account before issuing a cheque.?

Verify Cheque Details: Double-check the details on the cheque, including the amount and signature, to avoid errors.?

Regular Reconciliation: Regularly reconcile bank statements to keep track of the account balance and avoid any discrepancies.?

Timely Action: Address any issues with cheques promptly, including sending notices and following up on payments.?

Arbitration and Cheque Dishonour?

Arbitration Clause in Agreements:?

When an arbitration clause is included in an agreement, it establishes a binding procedure for resolving disputes between the parties. According to Section 7 of the Arbitration Act 2001, if a legal proceeding is initiated in relation to a matter covered by the arbitration agreement, the arbitration process will take precedence. This section operates as a non-obstante clause, meaning that, regardless of any other applicable laws, the court will not have jurisdiction to address the issue outside of the Arbitration Act 2001 provisions.?

Negotiable Instruments Act 1881 and Arbitration Act 2001:?

The Negotiable Instruments Act 1881 (N.I. Act) and the Arbitration Act 2001 are both specialized statutes. The N.I. Act provides for the criminal prosecution of offences related to dishonoured cheques, whereas the Arbitration Act 2001 deals with civil disputes. Generally, in cases where there is a conflict between ordinary law and special law, the special law takes precedence unless explicitly stated otherwise. Therefore, the specific provisions of the Arbitration Act 2001 will prevail over general legal procedures when it comes to arbitration, while the N.I. Act governs cheque dishonour issues, including criminal aspects.?

Conclusion?

Cheque dishonour in Bangladesh poses significant challenges both legally and financially. Understanding the legal framework and remedies available is crucial for those affected by such issues. While criminal and civil remedies offer avenues for redress, parties involved should also consider negotiation and settlement as practical solutions. Adhering to best practices can also help in mitigating the risk of cheque dishonour. By navigating the legal landscape effectively, individuals and businesses can better manage and resolve cheque-related disputes.?

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