Banking News

Implication of a bounced cheque


The implication of a bounced cheque is that the defaulter has to face a dire  legal consequences.  The punishment for bounced cheque is very severe with prison term of 2 years and / or a fine up to twice the cheque amount.

When a cheque is returned unpaid by the drawee bank with a cheque returned memo stating that the cheque is returned for the reason of ‘insufficient funds’ in the account of the drawer. The cheque so returned is called as ‘bounced cheque’.  Legal remedies are available to the payee or the holder in due course, under section 138 of Negotiable instrument Act or under section 420 of IPC (for cheating) or through summary suit order 37 of CCP (code of civil procedures) 1908 against the defaulter. However in all the above cases, action can be initiated under Court of law only where debt or liability of the defaulter can be proved. It means, no action can be taken against the defaulter if the cheque was received by the holder as a gift or donation.

The bounced cheque can be presented second time to the drawee bank for payment within 3 months of date of the cheque. In the cases of dishonored cheques(bounced cheques), the payee normally prefers to initiate the legal action u/s 138 NI act, as it is faster and cases under the said section are reserved only to cheque bounces. The procedure for initiating legal action against the defaulter for bounced cheque u/s 138 of NI act is simple. The first step is to send a legal notice to the defaulter within 30 days of receiving the cheque return memo from the bank. The legal notice would demand payment from the defaulter within 30 days from the date of notice, in place of bounced cheque amount. If the drawer (defaulter) of the cheque fails to make payment within 30 days of notice period, the payee can file criminal complaint u/s 138 of NI Act, in a magistrate’s court. The case u/s N138 should be filed within a month from the expiry of notice period. The court on perusal of affidavit and other trial papers from the petitioner, issues summons to the defaulter and hear the matter. If the payee or the holder or the holder in due course is able to prove the debt or liability of the defaulter, the court would award the punishment to defaulter for bounced cheque.

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