Cheque Bounce: How are consequences dealt with?

bounced cheque

Cheque bounce is a serious offence. In case a cheque given to you has bounced, send a letter (a demand notice) to the party that wrote the cheque (the drawer), threatening to initiate proceedings under the Negotiable Instruments Act (NI Act) if the amount due is not paid.

Consequences of Cheque Bounce

The threat of prosecution usually results in prompt settlement (if the drawer is an individual, the proceedings would happen under Section 138 of the NI Act. In case of a company, its managing director can be personally prosecuted under Section 141). The demand notice must be sent within 30 days from the date you found out that the cheque issued to you bounced. Its purpose is to demand payment and inform the issuer that he or she will be prosecuted if payment is not made within 15 days.

What should be in the cheque bounce notice?

It should contain the following information:
a. A statement that you presented the cheque within its period of validity.
b. Statement of debt or legally enforceable liability.
c. Information about the reason of dishonour of cheque (check the memo of the bank returning the cheque for this).
d. Calling upon the drawer to pay the amount due.
e. Statement that you are giving the drawer 15 days to pay up or you will initiate legal action.

Click here for more information on the law on bounced cheque cases.

Who can send a cheque bounce notice?

A lawyer is not required to send this notice but you may get it vetted by a lawyer for a few hundred rupees. The notice often becomes the point of fierce battle when a dispute does reach trial.

The proof of service of the notice is very important – you can courier it if pressed for time but also send a copy through registered post or speed post. If not pressed for time, just the speed post is enough.

If it is the 15th day and no payment has still been received, you have to file a complaint within 30 days before a magistrate in any of the following places: where the cheque was drawn; where the cheque was presented; where the cheque was returned by the bank; and where the demand notice was served by you.

If during the validity of the cheque, after the demand notice has been sent, the drawer asks you to present the cheque again and it is yet again dishonoured, the drawer’s time limit under the demand notice does not increase. The dishonour of a cheque due to stopped payment is also covered under Section 138 of the NI Act. You cannot take legal recourse if the cheque was issued as a gift, donation, or any other obligation that is not legally enforceable or if the validity of cheque is over (issued more than three months ago).

Priya holds a masters in accounting and is well-versed with compliance and legal issues a small business may face.