What are the Legal Consequences If Your Cheque Gets Bounced?

cheque bounces

A cheque is an order to the bank to enable the drawer to withdraw the amount as mentioned in the cheque written in a printed format. A cheque is one of the most negotiable instruments in the country which is normally valid for 3 months from the date written on it. Inspite of being such an important document the bounced cheque is one of the most common offenses in India. There are around 40 Lakhs pending cases in the Supreme Court regarding bounced cheques.

What is a bounced cheque?

A bounced cheque is a cheque where the payment as stated on the cheque is not made and the cheque is dishonored. There can be a number of reasons for bouncing of a cheque such as a mismatch of signature, expired cheque, insufficient funds in the account. The bank collects penalty from defaulter when a cheque gets bounced.

Bouncing of a cheque is a criminal offense in India. A person offering fraudulent cheque can be fined under Negotiable Instruments Act 1881, either with a fine or jail term.

What can be done in the case of a cheque bounce?

All the banks offer “cheque return memo” along with the returned cheque stating the reason for abounce. If you hold the cheque you must inform the drawer about this and see if it can be presented once again to the bank within a time period of 3 months. However, it is not necessary.

If you want you can send a legal notice to the default with a period of 30 days from receiving the cheque return memo. The legal notice must contain all the facts of the matter along with the details of when the got dishonored. If you know a lawyer, it is best to get it vetted by a lawyer and ensure that all the desired informed is available on the notice. The defaulter must make fresh payment within a period of 15 days from the date of receipt of this notice.

If he or she still fails to make the payment you must file a complaint in the magistrate court. This case should be filed within a period of 1 month from theexpiry date of 15 days’ time period.

You must keep in mind that the complaint must be filed within the time as specified. If you fail to file a complaint within the given timeframe then your case may become time-barred and will no more be entertained. At the time of hearing of your case the defaulter can be punished with a jail term for a period of two years or a penalty which can be up to twice the amount mentioned in the cheque. The defaulted should appeal against the order within a period of 1 month of judgment.

Case 1: Bouncing of a rent cheque

It is not uncommon in India to give a cheque to the landlord in order to pay the rent. In case your cheque gets bounced the landlord can follow the above-mentioned procedure to recover dues from the tenant. However, sometimes it is possible that the tenant did not have sufficient funds as the cheque was not dropped at the time expected by the tenant. Therefore, the landlord must first inform the tenant and then go ahead with a legal procedure if required.

There are numerous cases where the tenant wishes to offset an amount from particular months for the expenditure he made on the house on behalf of the landlord, which the latter refuses to pay. Even in such cases the criminal case will be filed against the tenant until such time the tenant is able to prove that there has been a legitimate offset.

Case 2: Check bounce for an EMI payment

The bank can file a case, when a cheque which is meant for an EMI payment on a loan is dishonored. However, that’s not how most of the banks deal with it.

Firstly, the bank levies heavy penalties or loan default charges, or cheque bounce charges and then if the bank is still not able to recover the amount the bank sends a legal notice to recover the cost. Any default or late payment made to the bank affect the credit score of the borrower negatively.

In certain cases such as car loan, ahome loan where the property or asset is owned by the bank until the time full repayment is made by the borrower, the lender may as well sell the property in auction in order to recover the cost of the property or an asset and make up for the loss.

Case 3: Cheque bounce in a business transaction

In case of a cheque from a business debtor gets bounced, then you must follow the above-mentioned procedure to recover the dues. In case of a bounced cheque in business transactions the added penalty would be aloss of face in your business circle which may affect your reputation as well as your business deals.

Considering the number of pending cases of cheque bounce in the country, the government is considering amendment of the Negotiable Instruments Act which will restrict the payee from taking defaulted per the court.

As per the news, defaulter will not be given jail term and will be handled through arbitration in LokAdalat, however this proposal has come under the criticism from the common man and it is believed that doing so will only increase the cases of default than bringing down the number of defaulters.

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