28 Aug Dishonour of cheques: Legal Recourse
Cases of cheque bounces or it not being honoured have become common.
It is quite unsurprising to see high-value cheques remain unpaid and returned by the bank on which they are drawn. The sequence of events that leads to the Dishonour of a Cheque is as follows:-
Essentials of a demand notice for cheque bounce:
- Reason for the dishonour of the cheque;
- Information to the Drawer to make payment of the amount containing details such as Account Number, Bank Name and branch at which it was presented, Date and Address of both the parties;
- A Request stating that the amount due is required to be paid to the payee within 15 days from the date of receipt of such notice, failing which legal action may be instituted.
The Demand Notice should be made within 30 days from the date of the return of the cheque. One copy of the notice should be retained by the Payee and the other copy should be sent to the issuer through a registered post or SpeedPost or Courier or even E-Mail.
In case the drawer fails to make the requisite payment within 15 days as prescribed in the cheque bounce notice, the Payee can file a complaint against him in the court within 30 days of the expiration of the prescribed 15 days.
There are two recourses in the case of cheque dishonour:
1. Civil: Payee can proceed with the recovery procedure apart from initiating criminal proceedings;
2. Criminal: Section 138 of NI Act considers the offence to be bailable, compoundable and non-cognizable for imprisonment extendable up to 2 years or fine being twice the amount of cheque or both.
The proceedings of the cheque bounce case will be as per the provisions of Summary Trial contained in the Code of the Criminal Procedure (CrPC), 1973. If the cause of action arises in metropolitan cities then the case shall be tried by a Metropolitan Magistrate and for other cities, a Judicial Magistrate shall try the case.
The complaint in a cheque bounce can be filed either at the place where the Payee’s bank is located or the place where the bank of the drawer is situated.
The cheque bounce complaint should be accompanied with supporting documents
- Cheque Return Memo from the Payee’s bank;
- Demand Notice;
- Reply to such Demand Notice (if any);
- Acknowledgment of the receipt of such notice;
- Invoice/Bill (if any);
- Original copy of the bounced cheque;
- any other evidence that deems necessary to the facts of the case.
The punishment for dishonour of cheque in India is-
- Imprisonment for up to 1 year;
- Fine which may be equal to double the amount of cheque; or
- Both of the above
However, if the payment has been made by the drawer of the cheque to the person in whose name the cheque was issued within 15 days of receiving of the Demand Notice under section 138 then it will be deemed that no offence has been committed by the drawer and he does not have to face any legal consequences of cheque bounce in India.
Magnus Legal Services LLP has dealt with more than 300 cases relating to cheque bounce under Negotiable Instruments Act.