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It is a well-known fact that, in India, “Cheque Return for Want of Funds” (Cheque Bouncing) is very common. No-body used to take it seriously, until Government of India, amended ‘The Negotiable Instrument Act’,   in 1988, then in 2002 and made it a criminal offence.

Section 138 of the Negotiable Instruments Act, 1881 states that:

  • For a certain amount of money a person should have drawn a cheque from a Bank account in favour of another person.
  • Cheque must have been issued for a payment of legally recoverable debt partly or for full and final.
  • Cheque should be presented within three months from the date of issue or within the validity period of the cheque and;
  • The Cheque is dishonored by the bank due to “Insufficiency of funds” or “stop payment” by the drawer/issuer of cheque;
  • Then the Payee should intimate to the drawer and send a 15 days demand notice for the payment of cheque amount within 30 days from the date of receipt of the intimation of the cheque bounce from the Bank and;
  • If the drawer failed to make the payment within 15 days then the payee should file complaint case u/s138 of N.I. Act, 1881 within 30 days either from the date of expiry of the notice or from the date where cause of action arises.
  • The payee can file complaint in writing before the First Class Judicial Magistrate (JMIC) or Metropolitan Magistrate (MM).
  • The payee may file suit only at the place where the bank in which the cheque is presented by the payee is located.
  • The court if finds guilty to the drawer for not making payment of Cheque amount willfully/deliberately the court may slap him with a fine of twice the amount of the cheque or imprisonment maximum up to two years or both.
  • The drawer can also approach the payee for settlement/compromise by making payment of the amount of the cheque and requesting him to withdraw the case as this is compoundable offence under Sec.147 of the N.I. Act, 1881.
  • The SC has also clarified that the court is empowered to discharge the drawer of cheque/accused even without the consent of the complainant if the court is satisfied that the complainant duly compensated.

Result of cheque bouncing can be very serious if it is not taken care of by the drawer of the cheque. Some of the serious impacts are as under:

  1. Cheque Returning Charges by the Bank: Any cheque bouncing is followed by cheque returning charges by the Bank of the Drawer (Cheque Giver) and the Payee (Payment of the Cheque Receiver). These charges range from Rs.100/- to Rs.1000/- plus GST. If the cheque is bounced for an EMI payment then in addition to the charges, interest is also demanded.
  2. CIBIL Score becomes Negative with every Bouncing: If cheques of a person are bouncing frequently, his CIBIL score is affected very badly. Financial Institutions/Banks may refuse to finance to a person with bad CIBIL score.
  • Civil Liability and Prosecution for Criminal Offence:

In case of non-payment of Cheque amount the payee can file a complaint u/s 138 of N.I. Act, 1881. The drawer can also be prosecuted for cheating u/s 417 & 420 of IPC. The court can also award compensation up to double of the Cheque amount to the payee as against the drawer.

  1. Diminish the reputation of the individual/Firm

A Cheque bouncing case leads to both Civil and Criminal Prosecution of the accused/defaulter individual and Firms. It affects the reputation of the Individual in the society and tarnishes the image/goodwill of the Firm or Company.

  1. Other Risks:

According to the Reserve Bank of India guidelines, Bank can also stop issuing cheque book to its customer, if his cheques are bouncing very frequently and even close the customer’s account with prior notice.

Note: It is noted that the liability u/s 138 of N.I. Act, arose once the drawer has put his signatures upon a blank cheque even if it is not filled by the drawer and it is later filled by someone else. Hence, it will not be excused before the court of law that the cheque is not being filled by the drawer.

It is always advisable to issue cheques only if there is sufficient balance in the account and maximum care should be taken to write the cheque very clearly, without any cutting or over-writing and with proper signatures (as recorded with the Bank) on the cheque.

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