A cheque bounce, also known as dishonor of cheque, occurs when a cheque cannot be processed by the bank due to insufficient funds in the issuer’s account or other issues, leading to its rejection. In India, a cheque bounce is a criminal offense under the Negotiable Instruments Act, 1881, specifically under Section 138, and can lead to legal consequences for the issuer of the cheque.
Reasons for a Cheque Bounce:
- Insufficient Funds: The account of the cheque issuer lacks enough money to cover the cheque amount.
- Signature Mismatch: The signature on the cheque does not match the signature in the bank’s records.
- Overwriting on the Cheque: Any tampering or overwriting on the cheque can cause it to be dishonored.
- Post-Dated Cheque: The cheque is presented for payment before the date mentioned on it.
- Frozen or Dormant Account: The account from which the cheque is issued has been frozen or is inactive.
- Account Closed: The cheque is drawn from an account that has been closed by the issuer.
- Mismatch in Amount: If the amount written in words differs from the amount in numbers.
Legal Consequences of a Cheque Bounce:
Under Section 138 of the Negotiable Instruments Act, 1881, the dishonor of a cheque is treated as a criminal offense, subject to certain conditions. The person issuing the bounced cheque can face legal proceedings.
Conditions for Filing a Case under Section 138:
- Cheque Issued for Discharge of Debt or Liability: The cheque must have been issued to repay a debt or other financial obligation.
- Cheque Returned by the Bank: The cheque is returned by the bank due to insufficient funds or any other valid reason.
- Legal Notice: The payee must send a written notice to the cheque issuer within 30 days of receiving the information from the bank about the dishonor of the cheque.
- Failure to Pay Within 15 Days: The cheque issuer is given 15 days from receiving the notice to make the payment. If they fail to pay the amount within this period, the payee can initiate legal action.
- Filing a Complaint: A complaint must be filed in court within 30 days of the expiry of the 15-day period after the notice is sent.
Legal Penalties:
If found guilty under Section 138, the issuer of the bounced cheque may face:
- Imprisonment: Up to two years of imprisonment.
- Fine: A fine that may extend up to twice the amount of the cheque.
- Compensation: The court may order the cheque issuer to compensate the payee for the cheque amount, along with interest or additional penalties.
Procedure for Filing a Cheque Bounce Case:
- Issuing a Legal Notice: After the cheque bounces, the payee sends a legal notice to the cheque issuer, demanding payment.
- Filing a Complaint: If the issuer fails to pay within 15 days of receiving the notice, the payee can file a complaint with the Judicial Magistrate or Metropolitan Magistrate.
- Court Proceedings: The court hears the case, during which the payee must prove the validity of the cheque, and the issuer is allowed to defend themselves.
- Judgment: If the court finds the issuer guilty, penalties and/or imprisonment are imposed.