Dishonor of Cheque and Procedure of Recovery:

Dishonoring of a cheque is not an offense if signatory has made arrangements with his bank to ensure that the cheque will be honored and where the bank was at default. Issuance of cheque dishonestly is an offense and the cheque holder may seek legal remedies in such matters. 

Remedies to Recover Amount:

The cheque holder has the following remedies in case the cheque is bounced by the bank:

1. The Criminal proceeding under section 498-F of the Pakistan Penal Code; and
2. The suit for recovery under the civil law; or
3. Both the civil and criminal proceedings at the same time.

Criminal Proceedings under Pakistan Penal Code:

Lodging of FIR:

If the cheque is dishonored for the reason of insufficient funds, Section 498-F of Pakistan Penal Code applies in case of the bouncing cheque. The complainant can lodge FIR against the signatory. The victim can lodge FIR where the cheque was dishonored or the place where the accused carries out his business.

Cheque Issued by a Company and Dishonored:

If the cheque dishonored was issued by a company, FIR can be filed against the signatory who issued the cheque. If a cheque is issued dishonestly, the signatory of such cheque and CEO of the company both will be prosecuted. 

Cheque Issued by a Firm and Dishonored:

If the cheque is given to someone by a partnership firm and dishonored because the partners have closed the partnership firm and dissolved it, the victim can lodge FIR against the partner who issued the cheque. All the partners are jointly and severally liable to pay the amount according to corporate law, but as far as criminal proceedings are concerned a partner who issued/signed the cheque can only be prosecuted.

Example: If there are three partners in a firm, two partners are actively running the business and taking care of day to day affairs of the firm, and the third one is only as a sleeping partner. Now the cheque is signed and issued by the two working partners. In case a cheque bounces and legal action is taken under section 489-F Pakistan Penal Code, the person who issued the cheque will be prosecuted. according to corporate law, if the person committing an offense is a partnership or a company every person who at the time of the offense was in charge of and was responsible shall deem to be guilty and liable to be proceeded against and punished accordingly.

Court Proceedings Upon Lodging FIR: 

The Sessions court will fix the case and call the accused. If the accused is not appearing before the criminal court on the date of hearing and whereabouts of the signatory is not known, the Court will declare him proclaimed offender because he is untraceable and vanished.

The complainant can request the court to proceed further in the matter and to record his evidence so that the accused can be arrested. The court can also proceed with the matter based on the evidence earlier recorded. Punishment on bouncing of cheque is imprisonment which may extend to three years and fine.

A suit of Recovery in the Civil Court:

The holder of the defective cheque can pursue the following procedure if he wants to proceed in the Civil court.

Notice:

The plaintiff needs to serve the notice of 14 days to the signatory of the cheque to show his intention to proceed with a recovery suit in the Civil Court.

Suit for Recovery:

If the signatory has not given the response on the legal notice, the plaintiff can file a suit for recovery in the civil court of the district of the last known address of the signatory.

The suit of Recovery if Cheque Dishonored of a Firm or Company:

If the cheque is given to someone by a partnership firm and dishonored because the partners have closed the partnership firm and dissolved it, all the partners are jointly and severally liable to pay the amount according to corporate law. A suit for recovery can be filed against all the partners in the civil court of the district where that firm is running its business. According to corporate law, if the person committing an offense is a partnership or a company every person who at the time of the offense was in charge of and was responsible shall deem to be guilty and liable to be proceeded against and punished accordingly.