-Article written by
Vaibhav Anand
Advocate
Practice: Jhansi,
Lucknow & Orai
Mob: 7318155422
A cheque bounce case can be quite distressing for both the payee and the issuer. This article will explore the essential aspects of cheque bounce, including the meaning, case procedure, time limits, punishments, and legal remedies. Additionally, it covers the latest Supreme Court guidelines from “Sri Dattatraya vs Sharanappa (2024)” and insights from “Prem Raj vs Poonamma Menon and another (2024).”
Contents of Article
What is a Cheque Bounce? Understanding the Meaning
A cheque bounce occurs when a bank returns a cheque unpaid due to reasons like insufficient funds in the drawer’s account, signature mismatch, expired validity, or other technical errors. The bank sends a cheque bounce message to the payee and returns a memo indicating the reason for dishonor. A cheque bounce is not only a financial issue but also a legal one, especially when the cheque is issued to discharge a legally enforceable debt.
Parties Involved in a Cheque
- Drawer: The drawer, often called the “author of the cheque,” is the individual who issues the cheque. In many instances, the drawer may be the debtor who owes money to the payee.
- Payee: The payee is the person or entity to whom the cheque is made payable. Essentially, the cheque is drawn in favor of the payee, and they are entitled to receive the specified amount. The payee may also be the creditor in certain cases.
- Drawee: The drawee is the bank responsible for paying the specified amount mentioned on the cheque. The bank acts on behalf of the drawer and will only process the payment if the drawer’s account has sufficient funds.
- Payee’s Bank: This is the bank where the payee holds an account and where the cheque amount is deposited or credited. In the case of a crossed cheque, it is this bank that processes the cheque for clearance.
Cheque Bounce-related Laws in India
The Negotiable Instruments (Amendment) Act, 2018:
The penalty for a bounced cheque is outlined in Section 138 of the Negotiable Instruments Act (NI Act). This law allows the payee to take legal action if a cheque bounces. The main goal of this law is to ensure the proper use of cheques and to uphold their legitimacy in financial transactions. While Section 138 deals with bounced cheques, it’s not treated as a separate offence, and the accused can seek bail in such cases.
New Cheque Bounce Rules
The Negotiable Instruments (Amendment) Act, 2018, made several changes to the original Negotiable Instruments Act, 1881, which governs cheque bounce cases in India. Some of the key changes include:
- Time Limit for Cases: Under the revised law, cheque bounce cases must be resolved within six months from the date the complaint was filed. This aims to speed up the legal process and provide faster relief to the aggrieved parties.
- Filing Jurisdiction: Previously, cheque bounce cases could only be filed where the cheque was cashed. However, the new rules now allow complainants to file cases at the location of their bank branch or where the cheque was issued, making it more convenient.
- Settlement of Offences: The amendment allows for the compounding (settling) of cheque bounce offences without a trial. This means that if both parties agree, they can resolve the matter amicably. However, this option is only available for first-time offenders.
- Repeat Offenders: Those found guilty of cheque bounce more than once now face stricter penalties. If a person is convicted two or more times for cheque bounce, they can be imprisoned for up to two years and fined up to twice the cheque’s value.
RBI Guidelines for Cheque Bounce (2021):
In August 2021, the Reserve Bank of India (RBI) issued new rules for cheque users. Under these guidelines, individuals who frequently use cheques must maintain a minimum balance in their bank accounts to avoid cheque bounce. If the required minimum balance is not maintained, the cheque may bounce, and the customer might have to pay penalty fees.
Additionally, updates were made to the National Automated Clearing House (NACH) system, which processes cheque clearances. Now, NACH operates 24/7, speeding up the cheque clearance process and improving overall efficiency for both public and private banks.
Section 420 IPC or 318 BNS and Cheque Bounce:
Typically, cheque bounce cases are resolved through reimbursement rather than imprisonment under Section 138 of the NI Act. However, if fraud or criminal breach of trust is involved, legal remedies may differ.
For example, if a cheque is issued for immediate payment, but the goods are purchased under false pretenses, and the cheque bounces, it may indicate a fraudulent intent. In such cases, the complainant can file a police report under Sections 138 of the NI Act, Section 420 of the Indian Penal Code (IPC) or 318 BNS for cheating, and Section 406 IPC or 316 BNS for criminal breach of trust.
Cheque Bounce, Cheating, and Double Jeopardy:
Article 20(2) of the Indian Constitution protects individuals from being tried multiple times for the same offence, a concept known as double jeopardy. So, can someone be charged under Section 420 IPC in addition to Section 138 NI Act for the same cheque bounce incident?
Recent rulings by the Karnataka and Gujarat High Courts (in the cases of Rashmi Tandon and Sangeeta Ben Patel) clarified that double jeopardy does not apply to criminal prosecutions under Sections 406 and 420 of the IPC in cheque bounce cases. This is because Section 138 of the NI Act does not require proof of guilty intent. Legal action can still be pursued even if a person unintentionally issues a bounced cheque due to insufficient funds.
However, deliberately misleading someone into believing there are sufficient funds constitutes an offence under Section 420 IPC or 318 BNS. Therefore, filing a police complaint for a bounced cheque under Section 420 IPC does not violate the principle of double jeopardy.
What is the Nature of Cheque bounce Case Civil or Criminal?
A cheque bounce case is criminal in nature, governed primarily by Section 138 of the Negotiable Instruments Act, 1881. When a cheque bounces due to insufficient funds, it becomes a criminal offence, attracting penalties like fines and imprisonment. However, the case also has civil aspects, as the primary intent is to recover the due amount. Thus, while it falls under criminal law to enforce payment discipline, it indirectly addresses the civil liability of debt repayment.
Cheque Bounce Case Time Limit and Notice Period
The cheque bounce case time limit is crucial to understand. According to Section 138 of the Negotiable Instruments Act, 1881:
- The payee must present the bounced cheque to the bank within three months of its issuance.
- Upon receiving the cheque bounce message from the bank, the payee has 30 days to issue a cheque bounce notice to the drawer, demanding the payment.
- The drawer is given 15 days to pay the cheque amount from the date of receiving the notice.
If the drawer fails to pay within this cheque bounce notice period, the payee can initiate a cheque bounce case within 30 days after the 15-day window. Understanding these time limits is critical for both the payee and the drawer to act promptly.
Cheque Bounce Case Procedure: Step-by-Step Guide
The cheque bounce case procedure involves several legal steps:
- Issuing the Cheque Bounce Notice: If a cheque bounces due to insufficient funds, the payee must issue a cheque bounce notice within 30 days. This notice should demand payment of the cheque amount and give the drawer 15 days to comply.
- Response to the Cheque Bounce Notice: The drawer must pay the cheque amount within 15 days from the date of receipt of the notice. Failure to do so gives the payee the right to initiate legal action. It’s important to understand that a cheque bounce notice is only valid if the cheque was issued to settle a legally enforceable debt or liability. If it was issued as a gift or donation, no legal offence is constituted under the Act.
- Filing the Case: If the drawer does not make the payment within 15 days of receiving the notice, the payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act. This complaint must be filed within 30 days after the notice period expires.
- Jurisdiction for Filing: The cheque bounce case jurisdiction can be the location where the cheque was drawn, where it was presented for payment, where payment was to be made, or where the cheque was dishonored. Recent judgments like “Sri Dattatraya vs Sharanappa (2024)” have clarified the scope of jurisdiction, stating that the place where the notice was served can also be considered.
- Court Proceedings: Once the case is filed, the court issues a summons to the drawer to appear and respond. If the drawer denies the complaint, the court will proceed with a criminal trial.
- Punishment for Cheque Bounce: If the court finds the drawer guilty, the cheque bounce case punishment can include imprisonment for up to two years, a fine twice the cheque amount, or both.
Importance of a Demand Notice in Cheque Bounce Cases
A demand notice plays a vital role in cheque bounce situations for several reasons:
- Formal Communication and Record Keeping: It serves as an official communication with the cheque issuer (drawer) and provides a record of your attempt to resolve the matter outside the court. If legal action becomes necessary, this notice serves as important evidence that you made an effort to settle the issue amicably.
- Setting Clear Expectations and Deadlines: The notice outlines the details of the bounced cheque, including the amount, cheque number, and date of issue. It also sets a deadline (usually 15 days) for the drawer to make the payment. This clarity avoids misunderstandings and signals your intention to recover the funds.
- Strengthening Your Case in Court: If the drawer does not respond to the notice or fails to pay within the given timeframe, the demand notice becomes crucial evidence in court. It shows that you tried to resolve the matter in good faith before seeking legal action, which can work in your favor during the legal process.
Key Elements of a Demand Notice
A well-crafted demand notice should be straightforward and include the following:
- Your Details: Include your name and contact information, clearly identifying yourself as the recipient of the cheque.
- Drawer’s Information: Mention the full name and address of the cheque issuer.
- Cheque Details: Provide specific details of the cheque, such as the cheque number, date of issue, and the amount.
- Reason for Bouncing: State the reason for the cheque’s dishonour, as indicated by the bank (e.g., insufficient funds).
- Demand for Payment: Clearly request payment of the full amount within a specified timeframe (typically 15 days from the notice date).
- Consequences of Non-Payment: Briefly mention the legal consequences under the Negotiable Instruments Act (NI Act) if payment is not made within the stipulated period.
- Date and Signature: Include the date of drafting the notice and your signature to authenticate the document.
How to Send the Demand Notice?
The method of delivering the notice is essential to prove that the drawer received it. The recommended ways include:
- Registered Post with Acknowledgement Receipt: This is the most reliable method, providing an official record that the notice was delivered to the specified address.
- Speed Post or Courier Service: If using a courier, choose one that offers delivery confirmation to serve as proof that the notice reached the drawer.
Recent Case Laws and Guidelines: Insights from 2024
- Sri Dattatraya Vs Sharanappa (2024): The Supreme Court in this landmark case issued guidelines emphasizing the drawer’s responsibility to honor the cheque and the payee’s right to receive payment. The Court reiterated the importance of complying with the cheque bounce case time limit and notice period to uphold the integrity of financial transactions. It also clarified the jurisdiction, allowing payees more flexibility in filing complaints.
- Prem Raj vs Poonamma Menon & Anr. (2024): This case shed light on the drawer’s liability in instances where cheques are issued as gifts or obligations not backed by legally enforceable debt. The Court observed that such cases do not constitute an offense under Section 138. Therefore, issuing a cheque bounce notice in such scenarios is not valid. The judgment has become a guiding principle for courts in evaluating the drawer’s liability in cheque bounce cases.
- Susela Padmavathy Amma vs. M/S Bharti Airtel Limited (2024 INSC 206): This Supreme Court judgment clarified the liability of company directors in cheque bounce cases. The Court established that simply holding the position of a director does not automatically implicate an individual in the company’s financial misdemeanors. The decision distinguished between being a director and actively managing the company’s day-to-day affairs. Therefore, liability under Section 141 of the Negotiable Instruments Act requires explicit involvement in the company’s operations. This ruling is particularly significant for non-executive directors, providing them with a safeguard against unwarranted legal challenges based solely on their title.
- Raj Reddy Kallem vs. The State of Haryana (2024 INSC 347): This case revolved around the use of settlements (Razinama) in cheque bounce disputes. The Supreme Court overruled the previous judgment in the Kanchan Mehta case, affirming that mutual consent is essential for compounding offenses under Section 138 of the Negotiable Instruments Act. The ruling stated that even if a settlement is reached, criminal proceedings could continue if the payee does not consent to compounding. This judgment emphasized the importance of clear agreements and increased the complexity of cheque bounce cases by underscoring that a settlement alone does not automatically terminate criminal proceedings. Consequently, it has made obtaining mutual consent crucial for the resolution of such cases
Court Proceedings: Navigating the Legal Process
After filing the complaint, the court will issue a summons to the drawer, requiring them to appear and respond to the allegations. The legal proceedings can be intricate and typically involve several stages:
- Examination of Evidence: The court reviews the submitted documents, including the demand notice, the dishonored cheque, and bank records. Witnesses may also be called upon if necessary. This examination is a crucial part of the cheque bounce case procedure in Indian courts.
- Arguments and Judgment: Both the complainant and the drawer will present their arguments. If the court determines that the cheque bounce case is valid and there is sufficient evidence, it can order the drawer to pay the following:
- Cheque Amount: The entire sum stated on the cheque.
- Penalty: As per the Negotiable Instruments (NI) Act, the penalty may include imprisonment for up to two years, a fine, or both. The court will decide on the penalty based on the circumstances of the case.
- Legal Costs: The court may also require the drawer to cover the complainant’s legal expenses, including court fees and attorney charges.
Additional Considerations
- Faster Resolutions and Harsher Punishments: The Negotiable Instruments (Amendment) Act, 2018, introduced changes to expedite cheque bounce cases. The amendment mandates that such cases be resolved within six months, ensuring a quicker outcome for complainants.
- Compounding of Offenses: The amended law permits the compounding of offences under certain conditions. If the drawer agrees to pay the cheque amount along with an additional compounded sum (as decided by the court) before a specified stage in the proceedings, the case can be settled outside of court. This provides a faster and potentially less costly resolution for both parties.
Seeking Legal Assistance for a Strong Case
While the basic procedure is outlined above, cheque bounce cases can be legally complex. Seeking advice from a lawyer experienced in Negotiable Instruments Act cases is recommended, particularly for:
- Drafting a Demand Notice: A properly drafted notice is essential for building a strong case. An experienced lawyer can ensure the notice includes all necessary information and meets legal requirements.
How to Escape from a Cheque Bounce Case: Legal Remedies for the Drawer
If you have received a cheque bounce notice, here’s how you can manage the situation to avoid further legal consequences:
- Respond to the Notice: It is advisable to reply to the cheque bounce notice, stating your side of the story and refuting any false allegations.
- Pay the Cheque Amount: The most effective way to escape from a cheque bounce case is to pay the cheque amount within the 15-day notice period. Once the payment is made, no legal action can be pursued against you under Section 138.
- Consult a Legal Practitioner: Before responding to the notice, consult a legal expert to understand the potential implications and build a defense.
- Challenge the Case: If the cheque was not issued for a legally enforceable debt or liability, the drawer can challenge the case in court by providing sufficient evidence.
What Happens if a Cheque Bounces? Consequences and Legal Repercussions
If a cheque bounces, the consequences can be severe for the drawer:
- Legal Notice: The payee will issue a legal notice demanding payment of the cheque amount within the prescribed notice period.
- Criminal Case: Failure to comply with the notice can lead to a criminal case under Section 138 of the Negotiable Instruments Act.
- Punishments: The cheque bounce case punishment may involve imprisonment, a fine, or both, depending on the circumstances of the case.
- Credit Impact: A bounced cheque may affect the drawer’s credit score and relationship with financial institutions.
Cheque Bounce Case Jurisdiction and Filling
The complaint can be filed before the Magistrate at any of these locations:
- Where the cheque was issued.
- Where it was presented for payment.
- Where payment was to be made.
- Where the cheque was dishonoured.
- Where the notice of demand was served.
How Do You Know if a Cheque Has Bounced?
When the bank responsible for paying the cheque (the drawee bank) decides that it cannot process the payment, it issues a “Cheque Return Memo” to the bank where the payee has deposited the cheque. This memo details the reason for non-payment. The dishonoured cheque, along with the memo, is then returned to the payee’s bank, which subsequently informs the payee.
Cheque Bounce Charges
When a bank rejects a cheque presented for payment, it is referred to as a “cheque bounce” or “dishonoured cheque.” The bank typically imposes a penalty on the account holder for the bounced cheque.
Resubmitting the Dishonoured Cheque
The payee or holder of the cheque can resubmit it for payment within three months of the date specified on the cheque. At the time of resubmission, the payee must present all necessary documents to facilitate payment.
If the cheque is dishonoured again, despite all efforts, the payee can take legal action against the drawer. A criminal complaint may be filed, and the drawer could face serious legal consequences, including prosecution and conviction.
It is crucial for the payee to collect sufficient evidence, such as proof of service delivery or product sale, to support their claim. Courts usually require valid proof of these transactions before issuing orders or judgments in favour of the claimant in cheque-related disputes.
Conclusion
A cheque bounce case is a serious legal issue governed by specific time limits and procedures. Both the payee and drawer must be aware of their rights and responsibilities to navigate through the complexities of cheque bounce cases effectively. Recent Supreme Court guidelines and case laws from 2024, such as “Sri Dattatraya vs Sharanappa” and “Prem Raj vs Poonamma Menon,” have further clarified aspects of the cheque bounce law, ensuring justice and upholding financial discipline.
Understanding the cheque bounce case procedure, jurisdiction, and the implications of not responding to a notice can help individuals and businesses handle these situations better. Always seek legal advice when dealing with a cheque bounce case to ensure compliance with the law and protect your interests.