A Guide to the Various Aspects of Cheque Bouncing

You must have heard about cheque bouncing. But, first things first, what is a cheque? A cheque is a printed leaflet that is used as a method of money transaction. A cheque is a negotiable instrument.  Cheques baring a later date is also used extensively especially business oriented as a mode of deferred payment. They are given to provide a certain degree of assurance on the part of the drawer of the cheque. Therefore, it becomes necessary to ensure that the one paying through a cheque does not misuse the assurance given by him. The Negotiable Instruments Act, 1881 deals with negotiable instruments, such as promissory notes, bills of exchange, cheques, etc. There is a strict cheque bouncing law to protect the value of a cheque.

The major components of a cheque

  1. Drawer:The drawer is the main component. He is the owner and issuer of the cheque. He writes the cheque in the name of the payee. He is the debtor.
  2. Payee:The payee is the one to whom the cheque is issues in the name of. The name of the payee is mentioned on the cheque. Basically, the cheque is drawn in favor of the payee. He is the creditor.
  3. Drawee:Drawee is the bank with which the drawer holds an account. The payee is paid from this bank. Via the cheque, the drawee orders the bank to pay the payee.
  4. Payee’s Bank:This is the bank with which the payee holds an account. The amount from the cheque gets deposited in this bank. The payee first deposits the cheque in the bank and gets the money credited.

 

It is to be noted that the issue of cheque bouncing is the sole responsibility of the Drawer of the cheque. On bouncing, there will be consequences under the cheque bouncing law. The payee can send cheque bouncing legal notice to the drawer if the check bounces. The drawer must pay a penalty for cheque bounce. This is when the drawee can lodge a cheque bounce fir. So, it is necessary to follow the cheque bounce RBI guidance

Provisions under the Negotiable Instruments Act, 1881:

Under Chapter XVII of The Negotiable Instruments Act, 1881, Sections 138 to 142 was introduced to inculcate confidence in deferred banking operations and give authenticity to the cheque as a negotiable instrument used in business transactions. If the drawer writes a cheque as a mode of overdue payment and the payee accepts it on good faith that he will get his payment on the due date, then he should not suffer on account of non-payment due to cheque bouncing or any other reason whatsoever. The penal regulations in Sections 138-142 of the Act of the cheque bouncing law have been enacted to ensure that the interest of the payee is protected.

 

Dishonor of Cheque (Cheque Bounce):

There are cheque bounce rules in India. Section 138 of the Negotiable instruments Act, 1881 provides for circumstances under which a case for cheque bouncing can be filed. The ingredients required for complying with the cheque bouncing section 138 are as follows:

  • As stated in the cheque bouncing act, a drawer must write a cheque for payment of money to the payee for the fulfillment of any debt or other liabilities;
  • The said cheque has been furnished to the bank within three months; as specified in the cheque bouncing legal notice
  • That issued cheque is handed back by the bank without crediting the money, either as a reason of insufficiency of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank complying with the cheque bouncing section;
  • The payee claims for the return of the payment of the money by issuing a written Cheque Bounce Notice concerning the cheque bouncing section to the owner of the cheque within a time space of 15 days of receiving the information of returning cheque from the bank as unpaid;
  • The owner of the cheque fails to pay the amount to the payee within 15 days of receiving the cheque bouncing

A cheque bounce with technical reason draws lesser to no punishment

Cheque Bounce Notice:             

This cheque bouncing notice shall be given by the unpaid Creditor (Payee) to the defaulting Debtor (Drawer) through an Advocate in case of dishonor of Cheque under section 138 of Negotiable Instruments Act, 1881.

This is a cheque bouncing notice by the Payee specifying 15 days given to the Drawer to make the payment of amount of the unpaid Cheque. The notice further states that if the amount is not paid within the specified 15 days of receiving the Notice, then the payee has the right to file a legal complaint and set off a Legal Proceeding against the defaulting Drawer.

Legal Action:

An incident of cheque bouncing is a criminal offense under the Indian Penal Code as well as under the Negotiable Instruments Act. A cheque bouncing case can be brought up is an incident of cheque bounce 3 times occur. The mode of action under The Negotiable Instruments Act is as follows:

  • Upon serving the cheque bouncing notice, if the drawer fails to make the payment within the stipulated 15 days period, then a criminal case is to be filed under section 138 of the Act against the drawer within 30 days from the date of expiry of 15 days specified in the notice with the concerned magistrate court within the jurisdiction.
  • The payee of the cheque bouncing offense or his official agent should be present in the witness box and provide significant and appropriate reasons for filing the case. If the court deems it fit, then the court will issue a summoning notice to the accused drawer to appear before the Court.
  • If the accused drawer fails from appearing in front of the court even after being served with the summons notice within the cheque bounce notice time limit then the court has the power to issue a bailable warrant in the name of the drawer. If, even after this the accused fails to appear again, a non-bailable warrant will be issued if the court deems fit. This is when they have to serve cheque bounce jail term period.
  • On the appearance of the drawer/accused of getting the cheque bouncing legal notice, he may furnish bail for cheque bounce to ensure his appearance during the trial. After which the appeal of the accused is taken into notice. In case he pleads guilty, the court will move the case for punishment. If the accused, denies any of the allegations, then he will be handed with a copy of the complaint filed.

 

The Complainant of the cheque bouncing may present his evidence by way of affidavit and produce all documents including the original in support of his complaint. The complainant will be cross-checked by the accused drawer or his counsel.

  • The last stage of the proceeding of the cheque bouncing case is that of the arguments after which the court will issue a judgment. If the accused is found not to be guilty, then the matter will be dismissed, but the complainant can be set forward for further appeals in the High Court, similarly, if the accused drawer is taken into custody, he can file a plea in the Sessions Court.

Under Sec 138 of the Act which is the basic of cheque bounce entry, the drawer of a dishonored cheque of the cheque bouncing case may be jailed for 2 years or fined double the amount of the cheque or both.

Under Sec 417 and 420 of the cheque bounce under IPC, 1960; the drawer of the cheque can be prosecuted and appropriate punishment may be handed out after issuing a cheque bouncing legal notice. However, to apply Sec 417 and 420 of the IPC, a case of cheating has to be proven then the accused can pay cheque bounce fine.

Landmark Judgments relating to Dishonor of Cheque:

Case name: Dayawati v. Yogesh Kumar Gosain (Delhi High Court)

The Delhi High Court in the procedure for cheque bounce case passed a notable judgment. The Court has drawn a distinction between traditional criminal cases and offence under Section 138 of Negotiable Instruments Act, 1881 to hold that it is legal to refer a criminal compoundable case as one under Section 138 of Negotiable Instruments Act to mediation.

Case name: Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd. (Supreme Court)

The Supreme Court in the case of cheque bouncing while stressing on the object behind enactment of cheque bouncing section 138 of Negotiable Instruments Act stated that the provision was incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned.

Case name: Jayalakshmi Nataraj v. Jeena& Co. (1996) 86 Comp Case 265

The Managing Director of the Company who was charged under Section 138 of Negotiable Instruments Act in cheque bounce case was held vicariously liable notwithstanding her plea that she did not participate in the day-to-day administration of the company and was not aware of its affairsfor cheque bounce.

Case name: Geekay Exim (India) Ltd. v. the State of Gujarat (1998) 94 Comp Cas 516

Mens rea not open to presumption- even though men’s rea is not an essential condition specified in Section 138 under the Negotiable Instruments Act for cheque bouncing charges, such element may be presumed to have existed only based on facts and circumstances of each case under the cheque bouncing law.

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