Dishonour of Cheque

Dishonour of Cheque
04 December 2019

Dishonour of Cheque

In usual terms, the non-payment of a cheque for any cause is called a ‘cheque bounce’ or ‘dishonour of cheque’. There can be two main grounds for the dishonour of a cheque .i.e.

  1. A technical failure in the cheque (such as a mismatch of signs, a huge difference between the amount written in words and in figures, etc.) or
  2. Funds in the account of the drawer are insufficient.
Kinds Of Dishonour Of Cheque

Dishonour By Non-Acceptance:

Section 19 of the Act talks about the dishonour by non- acceptance. Presentment for acceptance is needed only in the case of a bill of exchange. Generally, acceptance and payment go together and this commonly happens in case an instrument is payable after sight, thus it is often difficult to differentiate the two because dishonour by non-payment is commonly dishonoured by non-acceptance, so it is only this bill of exchange which can be dishonoured by non-acceptance and not a cheque as in the case of a cheque, no acceptance is needed to be taken to the banker and cheques are primarily instruments payable at sight.

Dishonour By Non Payment:

Dishonour by non-payment is the second type of dishonour. A negotiable instrument is assumed to be dishonoured by non-payment when the drawee of a cheque makes default in payment upon being duly required to pay the same. If the drawer of the cheques issues directions to the bank for not making any payment of a specific cheque issued by him, then the bank stands revoked from making payment on that particular cheque, this is called as countermand of cheques by the drawer.

Reasons for Dishonour of Cheque
  1. Closed Account
  2. Funds not sufficient
  3. Mismatched signatures
  4. Account holder stopped the payment
  5. Customer’s Death
  6. Customer’s Insanity
  7. The disparity in the figures and words mentioned in the cheque
Legal Framework

Legislation on the dishonour of cheque is referred from section 138 to 142 of the Negotiable Instruments Act 1881 as amended by Negotiable Instruments ( Amendment ) Act 2015. The penal provisions provided in Sections 138 to 142 of the Act have been made to ensure that obligations undertaken by providing cheques as a method of deferred payment are honoured. Section 138 of the Act requires for the conditions under which a suit for the dishonour of cheques is filed. The essential ingredients which are necessary for complying with Section 138 are the following:

  1. A person must have drawn a cheque for payment of money to another for the discharge of any debt or other liability;
  2. That cheque is returned by the bank unpaid, either because insufficient of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
  3. The payee makes a demand for the payment of the money by giving a notice in writing to the drawer within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
  4. The drawer fails to make a payment to the payee within 15 days of the receipt of the notice.
Punishment

An individual who commits an offence under Section 138 may be punished as under :

  1. Imprisonment for up to 2 years.
  2. A fine which may extend to twice the amount of the cheque, or with both.

However, no person can be punished unless the cheque has been presented to the bank within six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

Case Laws

Gautham T. V. Centre v. Apex Agencies:

In this case, it was held by the High Court of Andhra Pradesh that the court within whose jurisdiction the check is provided or where the office of the payee is located or where the information regarding the dishonour is received, will have authority to try the offence.

Barendra Kumar Bera V. Chottan Mukherjee (2009) 83 AIC 796 Calcutta (HC):

In this case, it was held that the word notice in terms of section 94 of the act states to instructor intimate someone to do something. It is not required that the notice is in written form. The statute may be verbal when it's not provided by the act to be in writing.

Dashrath Rupsingh Rathod V. State Of Maharashtra (2014) 9 SCC 129:

In this case, it was held that, where dishonour of cheque has occurred, the court under whose territorial jurisdiction drawee bank is situated would have authority to adjudicate upon the case.

F.Hunsikathimath V. State Of Kerala (1991) 1 crimes 227:

In this case, it was held that a penal provision is required to be interpreted not liberally but strictly. A check that is dishonoured on the basis of closed account cannot be interpreted as dishonoured for exceeding arrangement or funds not being sufficient as laid down in section 138 0f the Act.

Conclusion

Thus it can be concluded that a cheque gets dishonoured when the funds are not sufficient in the account of the individual or when the sum on the check exceeds the arrangement with the bank. The holder is required to give information to the party of the dishonour and then provide him the time of 15 days to make good the liability.