Legal remedy in case of Cheque Dishonor

Legal remedy in case of Cheque Dishonor
17 April 2022

Legal remedy in case of Cheque Dishonor


TIME LINE IN CASE OF CHEQUE BOUNCE


Before proceeding further let us first understand the meaning of cheque.


Section 6 of Negotiable instrument Act 1881, defines cheque as- 


A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Sec- 6 (a) of the Act includes cheque in electronic form. 


Timeline to present a cheque:


A Cheque should be presented within three months from the date which is mentioned on the cheque. Expiry of these 3 months will leave the cheque stale, invalid and hence of no use.


When can you say a cheque has dishonored/ bounced?


In a situation when you have presented a cheque to the bank and it could not be processed or dishonored due to many reasons like mismatched signature of the drawer, signing at the wrong place in the cheque, mistakes in the date of the cheque. Any type of overwriting or damage to cheque etc. Mainly, Non-sufficient funds in the drawer’s bank account is the reason for cheque bounce. Bad cheque or dishonored cheque is another name for Bounced cheque.


Penalty if Cheque has dishonored/ bounced


Cheque bouncing due to insufficient funds in the drawer’s account is the criminal offense under Section 138 of Negotiable instruments Act 1881. As per this Section, imprisonment for up to two years to the Drawer of the cheque, and/or a fine up to twice the amount of cheque bounced.


Another recourse is filing a civil suit for recovery of the cheque against the drawer. At times, banks also charge some amount as a penalty for cheque bounce.


What can be done in case of cheque Dishonor/ Bounce?


1. Legal Notice for dishonor of cheque

A cheque drawee can send a legal notice within 30 days from the date of Bank Return Memo of dishonor of cheque to provide drawer with a chance to rectify his mistake and to protect an honest drawer. It can be served in writing (sent by post), oral, or any other form (even as email communication) but it should convey expressly that the cheque has been dishonored and what will be the liability of the drawer.


2. Timeline after sending Legal Notice to the Drawer


a. Cheque dishonored- Sending Legal notice and providing drawer with the time limit of 15 days to pay his liability.


b. Given 15 days expired- Initiate action within 30 days from the expiry of 15 days notice period. Legal Action means to file a legal complaint u/s 138 of Negotiable Instruments Act 1881 before the concerned Court.


Procedure of filling a Criminal Complaint Case


Process of Cheque Dishonor/ Bounce suit-


1. After the 15-day notice period has expired, the complaint will be filed before the Chief Metropolitan Magistrate of the concerned District


2. The petitioner must appear before court to provide the full details related to the cheque dishonor. If the Magistrate is satisfied that the case is maintainable, then he will direct to issue a summon through court to the drawer.


3. After summoning, the drawer appears before the Court. If the issuer disagrees with the allegations, the court will initiate a criminal procedure.


4. The claims and evidence of both parties will be presented and heard in court.


5. After hearing the opinions of both parties, the court will decide the case and prosecute the criminal as per if proved guilty.