Charges in Case of a Cheque Bounce.

A cheque which gets returned due to some defect in it when presented in a bank is known as cheque bounce. A cheque bounce occurs primarily of two reasons, 1. When there is insufficient amount of funds in the account 2. The sum mentioned in the cheque is greater than the sum which has been set to be debited from the account by virtue of a preceding arrangement.

Cheque bounce is quite common and often happing episode in the business world but when a drawer decides to press charges for a cheque bounce then the drawee will have to face dire consequences.

Cheque Bounce Notice

In case if you happened to face a cheque bounce scenario in your business, you can send a demand notice (a letter) to the individual who wrote the cheque (the drawee), notifying him or her that you are going to instigate procedures under the Negotiable Instruments Act (NI Act), if the sum has not been paid.

Generally, the demand notice works and the drawer settles the sum that has to be paid. But if he or she fails to do so, if the drawer happens to be an individual, the trial will be processed under Section 138 of the NI Act and in case of an organization or a company; the managing director of the particular organization will be held accountable and can be prosecuted under the section 141. It is important to keep in mind that the demand notice should be mailed to the drawer within 30 days from the day when you are notified that the cheque has bounced. The reason to send a demand notice is to claim the sum and notify the drawer that she or he will be held accountable in front of law in case if they happen to make the payment within the next 15 days.

The demand notice must enclose the following information: 1. A statement indicating that you presented the cheque under the right period of its validity. 2. A declaration of debt or legally enforceable accountability. 3. Information or reason stated by the bank for the cheque bounce, which will be mentioned by the bank in a memo 4. A statement asking the drawer to settle the due amount in a span of 15 days failing to do so you will press charges against him or her

Though you do not need a lawyer to draft the demand notice it is best to get it drafted by a professional lawyer for a very affordable sum, as the demand notice acts as the most valuable source in case if the dispute move to the legal trial.

The evidence of the medium through which the demand notice is dispatched if very significant, in case if you are pressing it for time you can mail it through the assistance of courier and it is also safe to mail a copy through speed post or registered post. In case if you are not pressing for time then it can just be dispatched through speed post. When you have reached the 15th day after sending the demand notice and still no payment has been made, then you will have to register a complaint within 30 days after that before a magistrate. You can file a complaint before a magistrate in any one of the below mentioned places, the place where the cheque was dishonored by the bank or drawn or presented or in the place from where you served the demand notice.

During the period of validity of the cheque, if the drawer requests you to present the cheque again in the bank during his time on the demand notice period, and yet again if the cheque is bounced, the drawer does not get an extension in the demand notice period. Section 138 of the NI Act also covers the dishonor of a cheque because of a clogged payment. In case if the cheque is offered to you as a donation, present or any as any other form which cannot be legally enforceable or if the validity period of the cheque is exceeded (a cheque that is issued more than three months ago), you cannot press charges against the drawer.

Civil and Criminal Charges

If you choose not to file criminal charges against the drawer, she or he might get away with just a minimum amount of penalty which they will have to pay to the back for a cheque bounce. But if you register a criminal or civil case against them, the NI Act of 1881 would apply.

Section 138 of the Act states that any cheque bounce is a punishable offence and the drawer might be subjected to an imprisonment for a maximum period of two year or immediate settlement of the payment or both.

Furthermore, according to the Reserve Bank of India, banks have the power to cease issuing cheque books to any customers if they are booked for a bounced cheque. On cheques with amount over 1 crore, the minimum stipulation rate of the felony is set as at least four times the sum.

Bank Penalty

In case if the cheque is dishonored for insufficient funds or due to any other technical reasons like mismatch of signature, both the parties, the payee as well as the defaulter will be penalized by their respective banks.

Generally, for most of the banks the penalty for a cheque that is outward return will be Rs. 300 for most banks, while for cheque inward return are about Rs. 100. However, the penalty amount varies from one bank to another and vary based on the type of the account. In general, the premium accounts usually tend to have greater penalty charges.

Impact on CIBIL Score

A dishonored or bounced cheque will be a dent in the monetary credit history of a drawee. Even a history of single cheque bounce will have a negative impact on the individuals CIBIL score which to the maximum extend can lead to the denial of loan for the respective individual in the future.

When you are running a business CIBIL scores are very significant in creating credibility among your investors and has a greater impact in case if you approach a bank for a loan.

The best way to have a healthy CIBIL score is to make sure that the check you write never gets bounced and that you maintain a healthy balance in your account than the minimum fixed balance even after the cheque encashment.

There are also instances, when the cheque may have bounced due to: Spelling errors, Mistakes in dates, Overwriting, Signature mismatch, and Closed bank account. Low funds in the account (it will be considered as a greater offence if a cheque is issued with low funds) If there is any difference in the sum mentioned in figure and words, and so on.

Under such circumstances, the drawee can reissue the same within 30 days of intimation as soon as the cheque return memo reaches him, by doing so the drawee can avoid any of the above mentions felony.

Any pending payment that is not made within the given time span, generally 15 days, will be considered as a felony and the payee can put you in the court for a legal trail against the drawee of the cheque.

In case if the payment is are not made within the given time span, the court offers a time period of 30 days for the charges to be registered.

These are the major reasons for a cheque to be dishonored and whatever may be the other reasons, in order to have a healthy CIBIL score it is necessary to give due attention before issuing a cheque.

Always it is better to stay safe than to be sorry. So, while issuing a cheque make sure that it is written legibly and with clarity. In case if the cheque is bounced credit payment in your account as soon as you receive the demand notice.

Frequently Asked Questions

What is the validity of cheque in India?

The Reserve Bank of India issued a notification, with effect from April 1, 2012, the validity period of Cheques, Demand Drafts, Pay Orders and Banker's Cheques will be reduced from 6 months to 3 months, from the date of issue of the instrument.

What is a cheque return memo?

When a cheque is dishonoured, the drawee bank will issue a ‘Cheque Return Memo’ to the banker of the payee stating the reason for non-payment. The payee’s banker will give the dishonoured cheque and the memo to the payee. The payee can resubmit the cheque within three months of the date on it, if he believes it will be honoured the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally.

What is a cheque under Negotiable Instruments Act?

According to the Negotiable Instrument Act of 1881, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable except on demand. In Cheque Transaction, there are three parties involved. They are the Drawer, Drawee and Payee. The drawer is the person who writes the cheque and who has a banking account where their money is held. The drawer writes the various details such as the monetary amount, the date, and the name of the payee on the cheque, and signs it. The drawee is the bank, which pays the person or company the amount of money stated on the cheque. The payee is the person who is entitled to receive the money which is being paid by the drawer.