Since our nation is moving towards the digitization, online payment and net banking have become very popular nowadays as it is quick and convenient. Though people still use cheques as a method of payment. Cheques are negotiable instruments that are paid on demand. The cheque has to be issued properly to make it actually negotiable. The person who issues the cheque is called the ‘drawer’ and the person in whose favor the cheque is drawn is called ‘payee’ in the parlance of law.
Dishonor of Cheque or Cheque Bounce
When there are insufficient funds in the account, or errors regarding the signature or amount in a cheque, the cheque bounces. Dishonor of cheque due to insufficient funds is a criminal offense under Section 138 of Negotiable Instruments Act, 1881. Hence it is important for the drawer to ensure that his account have sufficient amount of money to honor the cheque issued.
When the cheque bounces then the drawer bank issues and sends a cheque return memo to the banker of the payee. It cites the reasons for cheque bounce. The bounced cheque and the cheque bounce memo would be returned to the payee.
The drawer can request the payee to resubmit the cheque after the deposition of a sufficient amount in the account. The payee can resubmit the cheque within three months from the date of the issue of the cheque.
To initiate the legal proceedings, a cheque bounce legal notice is sent to the drawer within 30 days from the date of acknowledging the ‘Cheque Return memo’, stating wherein, to make the payment to the payee within 15 days from the date of receipt of such notice by the drawer.
If the drawer fails to fulfill his/her payment liability, then he/she is punishable under Section 138 of the Negotiable Instrument Act. The payee can file the complaint in the Court of Judicial Magistrate of First Class or Metropolitan Magistrate (MM).
If drawer is found guilty in the light of evidence provided in the court, the Magistrate is empowered to pass a sentence of imprisonment from 1 year to 2 years or fine exceeding from Rs.5000/-. The cheque issuing bank also has the right to restrain the guilty drawer from availing cheque book facility and also to freeze the account due to repetitive commission of offence under the Negotiable Instruments Act.
Requirements to avail legal remedies under Section 138
There are some requirements to avail the legal remedies provided for bounced cheque: –
- A complaint has to be filed within 30 days from the receipt of reply to cheque bounce legal notice or within 30 days after the expiry of 15 days from the date the notice was sent if no reply is received from the drawer of the cheque.
- Section 138 of negotiable instrument act also deals with the dishonour of cheque if the payment of the cheque has been stopped by the drawer of cheque himself.
- If after the receipt of cheque bounce legal notice, the cheque is again presented as requested by the drawer and if the cheque gets dishonored again it does not extend the timeline of the drawer as provided in the notice.
- To attract the provisions of Section 138 of the Negotiable Instrument Act it is necessary that the cheque has been issued as a legal obligation i.e. towards the payment of any legally enforceable debt or any other liability. A cheque given as a gift, charity or any other non-legal obligation are not covered under the cheque bounce law.
- A cheque is valid only for three months from the date of its issuance.