What can I do if my cheque bounces?

If a cheque bounces, it can create significant legal and financial complications for both the issuer and the payee. In India, cheque bounce cases are governed under Section 138 of the Negotiable Instruments Act, 1881. This section provides for both criminal and civil remedies against the person who has issued a cheque that is dishonored by the bank due to insufficient funds or other reasons.

Steps to Take When Your Cheque Bounces

1. Understand the Reason for Cheque Bounce

The first thing to do is understand why the cheque was dishonored by the bank. The bank will issue a 'Cheque Return Memo' which mentions the reason for the cheque bounce, such as insufficient funds, a signature mismatch, a closed account, or stop-payment instructions.

2. Issue a Demand Notice

As per Section 138 of the Negotiable Instruments Act, after receiving the Cheque Return Memo, you must issue a legal demand notice to the cheque issuer. The notice must be sent within 30 days from the date on which the cheque was returned by the bank. The legal notice should include the following:

• Details of the cheque, such as cheque number, date, and the amount.
• The reason for dishonor as mentioned in the Cheque Return Memo.
• A demand for the payment of the cheque amount within 15 days from the receipt of the notice.

It is crucial to send this notice through registered post or courier with acknowledgment to maintain proof of delivery.

3. Wait for Response from the Drawer

Once the notice is served, the drawer (the person who issued the cheque) has 15 days to make the payment. If the drawer fails to pay the cheque amount within this period, you can proceed with legal action.

Legal Action in Cheque Bounce Cases

1. File a Complaint Under Section 138 of the Negotiable Instruments Act

If the drawer does not respond or fails to pay the cheque amount within 15 days of receiving the demand notice, you can file a criminal complaint in court. The complaint must be filed within 30 days after the 15-day notice period has lapsed.

To file a case:

• Prepare a complaint with the assistance of a lawyer.
• Submit the complaint in the court of Judicial Magistrate or Metropolitan Magistrate that has jurisdiction over the area where the cheque was presented.

The documents you need to submit with the complaint include:

• The original bounced cheque.
• The Cheque Return Memo issued by the bank.
• Copy of the demand notice.
• Proof of delivery of the demand notice (postal receipts, acknowledgment, etc.).

The court will take cognizance of the matter and summon the drawer for further proceedings.

2. Punishment and Penalty for the Drawer

If the court finds the drawer guilty of a cheque bounce under Section 138, the person can be punished with:

• Imprisonment for up to 2 years.
• A fine which may extend to twice the amount of the cheque.

The court may also direct the drawer to compensate the complainant for the cheque amount and additional damages.

Civil Remedies: Filing a Summary Suit

In addition to criminal action, you also have the option of filing a civil suit to recover the amount due. You can file a summary suit under Order XXXVII of the Code of Civil Procedure, 1908, which is a faster procedure for recovery of money. You can initiate a summary suit in the District Court or High Court (depending on the jurisdiction and amount involved) to claim the cheque amount along with interest and legal costs.

Important Legal Provisions in Cheque Bounce Cases

1. Section 138 of the Negotiable Instruments Act: This is the primary legal provision for cheque bounce cases, which outlines the procedure and penalties for dishonor of cheques due to insufficient funds or similar reasons.
2. Section 139 of the Negotiable Instruments Act: This section presumes that the cheque was issued for the discharge of debt or liability unless proven otherwise by the drawer.
3. Section 141 of the Negotiable Instruments Act: If the cheque was issued by a company, this section holds both the company and the officers in charge liable.
4. Section 142 of the Negotiable Instruments Act: This section provides the guidelines for filing complaints, including the timeline within which the complaint must be lodged.

Common Defenses in Cheque Bounce Cases

The drawer of the bounced cheque may raise certain defenses, such as:

• Post-dated cheque: The cheque was post-dated, and the funds were not available at the time of presentation.
• Payment stop instruction: The drawer stopped payment on valid grounds (e.g., a dispute with the payee).
• No legal liability: The drawer might claim that the cheque was not issued against any legally enforceable debt.

The onus is on the drawer to prove any of these defenses in court.

Tips for Preventing a Cheque Bounce Case

1. Ensure Adequate Funds: Always ensure that your bank account has sufficient funds when issuing a cheque.
2. Check Signature and Other Details: Make sure your signature matches the one registered with the bank and that all details on the cheque are accurate.
3. Avoid Post-Dated Cheques: Post-dated cheques can create problems if funds are not available on the date of presentation.
4. Maintain Records: Keep copies of all cheques issued and documents related to any financial transactions for future reference.

FAQs on Cheque Bounce Cases

1. Can I take both criminal and civil action for cheque bounce? Yes, you can pursue both criminal action under Section 138 of the Negotiable Instruments Act and civil action through a summary suit for the recovery of the cheque amount.
2. What is the time limit to file a cheque bounce case? After the cheque bounces, you must send a demand notice within 30 days. If the payment is not made within 15 days, you can file a case within 30 days after the notice period ends.
3. What if I missed sending the notice within 30 days? If you fail to send the demand notice within 30 days of receiving the Cheque Return Memo, you may lose the right to initiate legal proceedings under Section 138 of the Negotiable Instruments Act.
4. Can I claim interest on the cheque amount? Yes, if you file a civil suit for recovery, you can claim interest on the cheque amount from the date of dishonor until the recovery is made.
5. What if the cheque bounces due to a technical error? If the cheque bounces due to a technical issue, such as a signature mismatch or overwriting, the matter may not fall under Section 138, as it applies primarily to dishonor due to insufficient funds or a closed account.

Conclusion

A bounced cheque is a serious issue, and legal action can be taken against the issuer under Section 138 of the Negotiable Instruments Act. By following the legal steps, including issuing a demand notice and filing a complaint in court, you can recover the due amount and ensure the cheque issuer is held accountable.

Disclaimer: This information is intended for general guidance only and does not constitute legal advice. Please consult with a qualified lawyer for personalized advice specific to your situation.

Adcocate J.S. Rohilla (Civil & Criminal Lawyer in Indore)

Contact: 88271 22304

www.jsrohilla.com