The bank always issues a cheque return memo with the necessary reasons for non-
payment as soon as the cheque gets bounced (it may or may not be the first
instance of bouncing of the cheque).
What is a
cheque?
A cheque is an
exchange bill drawn upon a designated banker which is only payable on demand by
the applicant.
In strict legal
sense, the individual/ organisation issuing the cheque is called a 'drawer' and
the individual/ organisation in whose favour the cheque has been issued is
called the 'drawee'
How to file a
Cheque Bounce case?
In India. a cheque bounce is a criminal offence stipulated under Section-
138 of the Negotiable Instruments Act, 1881. However, in
case of a cheque bounce, the aggrieved party can file a criminal as well as a
civil suit against the accused.
How to
institute a cheque bounce case?
In a cheque bounce case, under law, the drawer still has time to
resubmit the same cheque within 3 months from the date of its issue if the drawer
feels that it would not get dishonoured in the future.
The
following legal measures can be taken by the drawee of a cheque:
Sending a demand notice (first step towards litigation)
The first step after the cheque has been returned by the bank is not to
register a legal complaint in the Police Station against the drawer (with/
without the lawyer) but is to send a formal demand legal notice/ letter to the
drawer within the stipulated time of 30 days from the date the cheque was
presented and returned back by the bank to the drawee. The legal notice must
insist the amount (as mentioned in the cheque) from the drawer. The notice must
also mention that if the amount is still not paid within the stipulated time
period of 15 days, then appropriate legal action as prescribed under the
Negotiable Instruments Act, 1881 shall be instituted against the drawer.
Since there is no established format for such a notice, it should simply be
demanding and relevant. The notice must explicitly highlight the main objective
of the notice that is to demand payment from the drawer while informing and
warning the drawer of the legal consequences that might result due to non-
payment of the pending amount. The drawee must preserve the delivery proof of
the notice like the postal receipt/ online status of the notice.
The said demand notice can be sent by the drawee himself, however, it is
advisable to seek help from an expert cheque bounce lawyer to draft such a
notice to be sure about the legal language and to ensure the notice leaves a
fearing impact on the drawer against his breach of trust.
What must be clearly stated in the demand notice by the drawee?
The drawee must clearly provide instances of the default and breach of trust
committed by the drawer.
The following are the key points to remember:
- The first thing is to state that the cheque was
presented in the bank within the stipulated time- period
- It must clearly provide the statement of debt as well
as drawer’s legal liability
- The notice must provide the information provided by the
bank on the dishonour of cheque. A copy of the said cheque could also be
enclosed.
- Explicit demand for payments of dues with interest if
liable to be paid within 15 days of receiving the notice.
How to draft a
complaint?
A complaint is only affected when the drawer has not replied to the demand
notice within a period of 15 days from the delivery of the notice or has been
delaying payment unnecessarily or has outrightly refused to pay the amount. A
complaint is to be filed in the court which would have the jurisdiction over
the dispute within the prescribed time limit of 30 days (from the date of
receipt of the demand notice by the drawer).
It is pertinent
to understand which court the drawee should approach in a cheque bounce case. The drawee can register the complaint in a
court within whose local limits of jurisdiction any of the following incidents
may have arisen:
- Place where the cheque was drawn
- Place where the cheque was presented
- Place where bank returned the cheque
- Place where the notice of demand of payment was served
by the drawee
The drawee must have all the important documents before
registering the complaint, for instance,
- Photocopies of the cheque returned by the bank, memo,
copy of the legal notice for demand sent to the drawer and the
acknowledgment slips/ receipts
- Written complaint
- Letter of oath
What is the
structure of payment of court process fees to file a cheque bounce case?
Every litigation process requires payment of court fees. Similarly, while
filing a cheque bounce complaint, the drawee (complainant) has to pay a
standard amount of court fees which varies case to case and entirely depends on
the cheque amount against which the complaint is being filed in the court.
The standard court fee structure varies for different cheque
amounts which is mentioned below:
Cheque Amount Court Fee
Rs. 0 to 50,000/-
Rs. 200/-
Rs.
50,000/- to 2,00,000/-
Rs. 500/-
Above Rs. 2,00,000/-
Rs. 1000/-
When is court
notice sent to the accused?
Once the complaint is filed by the drawee (complainant), the court issues
summons to the drawer (accused person) who has failed to make payment and
furnished an irregular cheque.
What is the
relevant evidence in a cheque bounce case?
It is advisable to prepare the cheque bounce complaint with the help/
assistance of an expert cheque bounce lawyer. The complaint must forward all
the important/ useful evidence like the original cheque that was returned by
the bank, the cheque return memo, demand notice sent against non-payment/
cheque bounce, receipts of legal notice and any other relevant document that
can be used as evidence to support one’s legal standing that the accused is
liable to pay the un-paid amount with interest as deemed fit by the court for
all the mental and physical trauma caused due to court procedure.
What can be the
penalty and punishment for an accused in a cheque bounce case?
Once the entire trial is over and if the accused is found guilty, then he can
be punished with a monetary penalty which can be double the cheque amount or be
punished with imprisonment which may extend to 2 years or even both.
What is the
Memo of Advocate (MoA) and how is it essential during a court procedure?
An MoA is relevant since it is the official/ legal document authorising the
advocate to appear in the court for his client as per his instructions. An MoA
is popularly known as Vakalatnama in India. The vakalatnama
must be presented on the first date of hearing/ filing of the complaint with
the signatures of the complainant who is the client of the advocate.
- As soon as the case is filed and accepted in the court,
each and every document is cross- checked by the Judicial Magistrate First
Class, as a result, all the original documents like the original cheque
(that was retuned back by the bank), original memo, a copy of the legal
notice, receipts from the post office, receipts of Universal Product Code
(UPC), acknowledgement receipts, are all needed during the time of cross-
checking the documents.
- Besides the documents, the limitation period to file
the suit is also validated.
- Moreover, the Process Form which is popularly known as
the Bhatta, is filed by the drawee (complainant) himself or by
his lawyer, along with the address of drawer (accused)
- The next step is for the court to issue summons to the
accused for him to appear in the court on a specified date to be decided
by the court.
- In case the accused fails to appear in the court on the
desired date of hearing, the court has complete authority to issue a
bailable warrant against him if requested by the complainant.
- And in case the accused again fails to appear before
the court, the court in all probability will issue a non- bailable warrant
of arrest against him.
What is the procedure
to file a civil suit after a cheque bounce?
An aggrieved drawee has an option to separately file a civil suit when advised
by his lawyer to recover the due amount from the drawer after a tedious legal
battle to recover money. A civil suit can help the complainant recover the due
amount as well as the costs that he has borne during the litigation. As a
result, a summary suit under Order- 37 of the Code
of Civil Procedure, 1908 can be utilized to recover the due
amount
A summary
suit is unique which is contrary to an ordinary suit. A summary suit
or the summary procedure is provided under Order XXXVII of Code
of Civil Procedure, 1908 where right to defend himself is not provided
to the accused rather, the accused needs permission from the court to defend
himself.
However, legal
utilization of summary suits can only be utilized in recovery matters, be it
cheques, promissory notes or bills of exchange (wherever there was written
contract to make payment).
What are the key things to remember in a cheque bounce case?
- The Magistrate may only let off the delay in filing a
cheque bounce complaint i.e. after the expiry of 30 days during
extraordinary circumstances (legitimate reasons).
- Section- 138 of the Negotiable Instruments Act also
covers dishonour of a cheque due to stop payment.
- In case the cheque has been presented after the request
of the drawer (accused) after the legal notice demanding payment has been
sent and the resulting dishonour of cheque will not mean that the time-
limit under the legal notice has increased for the accused.
- Any dishonoured cheque that was issued as a gift or
donation or any other obligation, shall not be covered under Section- 138
of the NI Act. So for this legal provision to apply or be utilized the
cheque must carry a legal obligation.
- The limitation period of a cheque is 3 months from the
date on which it was issued by the drawer.
What are the
various consequences of a cheque bounce?
A cheque bounce offence is undoubtedly one of the most common financial
offences across the globe and India is no stranger to these even when a cheque
bounce case can cause terrible repercussions to the drawer of the cheque.
The following
are a few ways via which a cheque bounce can affect the cheque drawer:
- Penalty
from the bank - In case a cheque bounce has arisen because of
insufficient funds in the bank account or there has been irregularity in
the signatures or due to some other technical issue as mentioned earlier,
the drawer (accused) and the drawee (complainant) are imposed with
penalties by their respective banks.
This penalty is
ordinarily a Non- Sufficient Fee (NSF), i.e. when there are insufficient funds
in the bank account and as a result of that the bank chooses to bounce the
cheque. The fee amount resulting from this is determined by the grounds and
disposition of cheque bounce together with the type of bank account. In
addition to this, in case the cheque bounce is with regard to repayment of a
loan, the bank would further penalise with additional late payment charges due
to delay in payment together with the penalty fee.
- Negative
influence on the CIBIL score – A CIBIL score is a 3 digit
number, fluctuating between 300 to 900 which is used by banks and Non-
Banking Financial Companies (NBFCs) to determine a
person’s credit suitability and the chances of repayment of the
loan amount on time by that person.
Therefore, a
cheque bounce incident can be awful for the financial credit history of the
accused. The tag of a cheque bounce can be extremely damaging towards the CIBIL
score of the accused that he may not be allowed loan every again by any
financial institution. Therefore, to avoid the same and in order to maintain a
beneficial CIBIL score, every person must always ensure that the cheques that
are furnished to anyone never get dishonoured. Moreover, every person must
maintain at least few if not more thousands than the minimum balance required
in the bank account even after the cheque has been converted into money.
- Civil or
Criminal action against the drawer (accused) - A
dishonoured cheque in all probability can result in both a civil as well
as a criminal lawsuit against the drawer if the drawee (complainant) does
not receive the payment that was initially promised.
An aggrieved drawee (potential complainant) who has been on the receiving end
of a cheque bounce has 2 options available to him for lawsuits. First, to file
a lawsuit under Section- 138 (cheque bounce) of the Negotiable
Instruments Act, 1881 or second, a lawsuit under Section- 420
(cheating and dishonesty) of the Indian Penal Code, 1860.
Now, in case a lawsuit against the drawer is filed for cheating under Section-
420 of the IPC, the court can issue a non- bailable warrant against the drawer
of the cheque. Although, to institute a lawsuit under this section, a case of
cheating and dishonesty needs to be proven against the drawer.
In situations
of multiple bouncing of cheques, the law permits to file separate cases for
separate cheques bounced.
- Additional
risks due to cheque bouncing – In line with the RBI
guidelines, the banks have been authorised to disallow issuance of cheque
books to any of their customers who have been accused at least 4 times
against dishonour of cheque for an amount exceeding Rs. 1 crore.
Apart from this, if the bounced cheque is the one issued as an Equated Monthly
Instalment (EMI) towards repayment of the loan amount, then the bank has the
absolute right to send a legal notice to the defaulter as well as to withdraw
money from the defaulter’s active bank account.
What happens
when a cheque bounce issue is not resolved?
Cheque bouncing disputes are way more common than any other financial offences
in India that are directly affecting today’s financial ecosystem. Currently, as
per the Supreme Court of India there are more than 40 lakh cheque bounce cases
that are pending.
Besides this, a
cheque bounce can result in multiple repercussions for the drawer as well as
the drawee as described earlier, for instance, heavy penalty from bank,
negative influence on the CIBIL score which would ultimately mean getting
blacklisted to obtain any future loans, civil or criminal action against the
drawer (accused) and many more. In addition to this, in incidents where no
legal action has been taken by the drawee against the drawer against cheque
bounce or non- payment of money or cheating and dishonesty within the stipulated
time as per law, the same can result in lack of remedy for the drawee of the
cheque since there is a set limitation period in filing a cheque bounce case.
Therefore, it is critical for the drawee to tackle a cheque bounce case in
order to avoid losing his hard earned money.
How can a
lawyer be helpful in a cheque bounce case?
Considering the law and the numerous provisions stipulated under it and
everything that has been mentioned throughout this law guide, a cheque bounce
case in all probability can attract criminal charges against the drawer.
Therefore, it is of paramount importance to hire an expert cheque bounce lawyer
to draft a legal notice, to file a complaint and also to defend an accused by
drafting an appropriate reply to the legal notice/ complaint. Hiring an expert
lawyer can ensure that the person involved is on the correct path towards
getting justice whether the person is the drawer of the cheque or is the drawee
of the same.
The responsibility of lawyer is not just to accumulate the relevant information
for his client in relation to the cheque bounce case but also manage all the
paperwork that allows enough time to focus on his business and other
considerations.
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