According to Section 138 of the Negotiable Instruments Act of 1881 ("Act"), bouncing a check is an offense that is punishable by a fine up to twice the amount of the check, up to two years in prison, or by both. A check is said to have bounced when the payee presents it to the bank for payment and the bank returns it unpaid with a memo of insufficient funds. So you may arise several questions and tensions due to cheque bounce. So let's see this article in detail.
Although it’s one of India’s most common financial offenses under Section 138 of the Negotiable Instruments Act, 1881, it’s a cognizable offense. In other words, if charged, it’s punishable with imprisonment for a term which may be extended to two years, or with a fine which may extend to twice the amount of the cheque, or with both. The aggrieved party can file a civil or criminal complaint against you, the issuer of the cheque. A cheque is said to be dishonoured or bounced when presented to a bank. Still, the amount is not paid because of insufficient funds in the issuer’s account, mismatched signature, or other reasons and one can get arrested for a cheque bounce in India.
Consequences of a Notice of Cheque Bounce
A cheque can bounce for several reasons, but it is an act of fraud under the Act if it does so because there are not enough funds in the drawer account. The bank must issue a return memo explaining why it rejected the cheque presented for payment due to insufficient funds. When this occurs, the check payee may send a notice of cheque bounce to the drawer requesting payment of the Cheque Amount.
New Cheque Bounce Rule
Customers who use checks frequently or intend to use checks will need to maintain a minimum bank balance, per a notice released by the Reserve Bank of India (RBI) in early August 2021. The check will bounce if this minimum balance is not kept. Additionally, the person who wrote the check may be responsible for paying a penalty fee. The National Automated Clearing House (NACH) was also modified and made operational 24/7 by the RBI.
All national and private banks must comply with these changes. The rule modification was implemented to speed up and generally improve check clearing. Due to the new rule’s guarantee that NACH will be available every day of the week, the entity will also be able to process and clear checks on Sundays.
Circumstances of Cheque Bounce
The following are the various circumstances that lead to a bounced check:
- Insufficient Account Balance: The bank will reject and revert back the check to the payee with a memo stating that there are insufficient funds to cover the cheque amount if there is not enough balance in the drawer’s account to make the payment of the cheque.
- Expired Validity of Cheque: A cheque that has passed its expiration date must be presented for payment within three months of the drawer issuing it. If the check is not presented to the bank within three months, it becomes invalid. When a bank receives an expired check, it bounces.
- Overwriting: A check will bounce if it has been overwritten with the drawer’s signature, the amount of the check, or any other statement.
- Damaged cheque: A cheque that has been damaged or defaced, with the details obscured or covered in stains or marks, will bounce.
- Signature Mismatch: The check will bounce if the drawer’s signature is illegible, missing, or does not match the one on file with the bank.
- Mismatch of Figures or Amounts: The check will bounce if the amount on the check is different in words and figures.
In each case, the intention of cheating has to be proven. Of course, it also depends upon the amount in the bounced cheque, meaning what you owe the person to whom you issued the cheque. If you’re lucky, where the defaulter understands it’s a genuine mistake or an oversight on your part, you can get away by paying a small fine to the bank for the bounced cheque.
If you have been sued, the case is being heard in court, and you must travel abroad for some reason, then you can do so. However, this is only possible if the court has not passed an order passed directing you not to leave India. You will remain amenable to the Indian courts, so you can only take short trips and not relocate until the case is settled.
Also, remember that since it’s a criminal case, if you do not attend court continuously for a long period, the court can issue an arrest warrant against you. You have to make bail and be present before the court. So, it’s prudent to take this seriously.
Mandatory Legal Notice
The payee, however, cannot straight away go the legal way. Under Section 138 of the Negotiable Instrument Act, before filing a Cheque bounce Cases complaint, it is mandatory to send a legal notice along with the return memo number within 30 days from the bouncing date. Suppose no reply is received within 15 days of the delivery of the demand notice. In that case, the payee can file a legal complaint within a month.
Steps Involved Once the Action is Taken
The defaulter (you) will get another chance to make a fresh payment. Remember, it’s a bailable offence. But if you do not appear before the court after receiving a summons, the court can issue a bailable. A non-bailable warrant will be issued against you, and you can be arrested. Suppose the cheque issuer (you) fails to make a fresh payment within the said time period of receiving the notice. In that case, the payee has the right to file a criminal complaint. However, the complaint should be registered in a magistrate’s court within a month of the expiry of the notice period.
Suppose, for some reason, and the payee fails to file the complaint within this period. In that case, the payee’s suit will become time-barred. The court will reject it unless they show sufficient and reasonable cause for the delay.
The court will issue a summons and hear the matter on receiving the complaint, along with an affidavit and relevant paper trail. Found guilty, you, the defaulter, can be punished with a prison term of two years and a fine, which can be as high as twice the cheque amount.
Duration of the Case
This is a grey area. Considering the amount of pending cases in our legal system, if you attend every hearing and provide sufficient evidence that indicates you didn’t intend to cheat the person who filed the case against you, it can be disposed of in about one and a half years. But if you are inconsistent and the magistrate has issued a summon, it may take over 3-5 years to dispose of the case. If you don’t show up and decide to abscond or leave the city without attending any of the hearings, the case against you will be pending.
Never writing a check without funds in your account is the best practice for preventing a cheque bounce. A person can make a firm financial commitment to another person by giving them a check, but doing so carries many obligations, and consequences should the check not be honored.
You must get to know the right expert to help you if you face any consequences and need more information about how to handle such a situation. For any legal services, you can always turn to Vakilsearch, and they will handle the paperwork hassle-free!