Cheque Bounce : Learn Everything About Cheque Bounce Case in India

What is a Cheque?

A Cheque is a bill of exchange drawn upon a specified banker payable only on demand. The person who has issued the cheque is known as ‘drawer’ and the person in whose favour the cheque has been issued is known as ‘drawee’.
Following are the requisites of a cheque:

1. It has to be in writing
2. It has to be an unconditional order
3. Banker has to be specified
4. Payment should be directed to a specified person
5. It should be payable on demand
6. It should be for a specific sum of money
7. Should have the signature of the drawer

What is Cheque Bounce?

When a cheque is returned by the bank unpaid, it is said to be dishonoured or bounced. It can happen due to several reasons such as insufficiency of funds, etc.

When the cheque is bounced for the first time, the bank issues a ‘cheque return memo’ along with reasons for non-payment.

It is important to know that bank fee is only a single aspect in case of a cheque bounce. In several cases, the beneficiary/payee also measures a charge.

For instance, if in a situation a person writes a check to the electronic store and the check bounces, then the store may reserve the right to redeposit that cheque along with a bounced cheque fee.

Further, negative reports with financial bureaus can make it difficult for consumers to open savings and current accounts in the future.

Cheque Bounce Reasons

Following are some of the reasons why a cheque generally gets bounced:

1. Signature doesn’t match
2. Overwriting in the cheque
3. Cheque was presented after lapse of three months, i.e. after being getting expired
4. Account has been closed
5. Insufficient funds in the account
6. Payment gets stopped by the account holder
8. Insufficient Opening Balance
9. There is a disparity in words and figures mentioned on the cheque
10. No company seal in case the cheque is issued by a company
11. Mismatch in account number
12. In case of joint account in which signatures of both the account holders are required, but only one sign is available
13. Customer Died
14. Customer became insolvent
15. Insanity of the customer
16. Crossed cheque
17. When cheque is issued against the rules of trust
18. Alteration in cheque
19. Doubt in genuineness of the cheque
20. Presented at the wrong branch
21.Crossing limit of overdraft (OD)

Negative Impact of Bounced Cheque

1. Bad Impact on CIBIL score: A bounced cheque surely tend to hamper your financial credit history. A single cheque bounce scenario can shake your CIBIL score irreparably to such a level that you can be deprived of a loan. Hence, the smartest way to keep your CIBIL score active is to make sure your cheques are never defiled, and your account possesses sufficient balance.
2. Other Risks: According to the guidelines issued by RBI, a bank can restrict the issuing of a cheque book to any customer who is booked repeatedly for the offense of cheque bounce. The max chances offered to a customer are four times on cheques valued above ₹1 crore.

Further, if you have preserved any collateral security with the bank for a particular loan and if the repayment EMI cheque bounces, then the bank is offered the right to issue a legal notice or can even deduct money from your active account.

How to file a Cheque Bounce case?

Cheque bounce is a criminal offence in India, covered under Section 138 of the Negotiable Instruments Act. In case of cheque bounce, the following actions can be taken by the payee of a cheque:

Filing a Cheque Bounce Case:

In case of a cheque bounce, the payee is eligible to re-submit the cheque within 3 months of the date of issue if he knows that it would not be dishonoured the next time.

Yet another way is to send a legal notice with the help of your cheque bounce lawyer, to the defaulter within a period of 30 days of receiving the cheque return memo. All the relevant facts of the case, including the nature of the transaction, amount, date of depositing the instrument in the bank, and the subsequent date of dishonouring should be clearly mentioned in the notice.

If no action is taken on the notice and a fresh cheque or repayment is not done within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act. The complaint should be registered in a Magistrate’s Court within a month of the expiry of the notice period.

On receiving the complaint, along with an affidavit and relevant documents, the court will issue summons and hear the matter. If found guilty, the defaulter can be punished with a prison term of two years and/or a fine, which can be as high as twice the cheque amount. However, the defaulter can appeal to the session’s court within one month of the date of the judgment of the lower court. If a prolonged court battle is not acceptable to both the parties, an out-of-court settlement can be attempted at any point.

Filing a Civil Suit

In case of non-recovery of the due amount during the long battle of legal dispute, one can separately file a civil suit with the help of a cheque bounce lawyer, for recovery which would cover the costs borne by the petitioner during the legal battle.

This is where a summary suit under Order 37 of the Code of Civil Procedure 1908 comes in. A summary suit is different from an ordinary suit as it does not give the accused the right to defend himself. Instead, the defendant has to procure permission from the court to do so. Summary suits can be availed of only in recovery matters, be it promissory notes, bills of exchange or cheques.

Consequences of Cheque Bounce

Cheque bounce is one of the most common financial offences in India that can cause disastrous consequences to the issuer. Below are few ways through which a cheque bounce can affect you:

Bank Penalty: If a cheque bounce takes place due to insufficient funds or a signature mismatch or any of the other technical reasons as previously mentioned in this article, the defaulter and the payee are charged a penalty amount by their respective banks. This penalty is generally an NSF fee, i.e. when there are insufficient funds in the account and the bank decides to bounce the cheque. The amount of this fee depends upon the reasons and nature of cheque bounce along with the type of account. In case the bounced cheque is towards repayment of a loan, the bank would also levy additional late payment charges along with the penalty charges.

Negative influence on the CIBIL score: A cheque bounce can badly impact your financial credit history. A cheque bounce for the first time can only damage your CIBIL score irreparably to an extent that you might get denied a loan in the future. In order to ensure a healthy CIBIL score, one must always make sure that his cheques never gets dishonored and must keep at least some thousands more than the minimum balance in the account even after the cheque has been encashed.

Civil or Criminal action against the issuer: A bounced cheque can also attract possible civil or criminal action against the issuer if the aggrieved party does not receive the promised funds. In a situation where a cheque has been dishonored, the aggrieved party has an option to file a case under Section 138 of the Negotiable Instruments Act, 1881 or Section 420 (Cheating) of the Indian Penal Code, 1960.

If a case has been filed under section 420, a non-bailable warrant can be issued against the issuer of the cheque.

However, to initiate proceedings under this section, a case of cheating has to be proven against the issuer. In case the bounced cheques are more than one, separate cases for different cheques can be filed.

Other Risks: According to the RBI guidelines, the banks can prohibit the issuance of cheque books to any customer if he has been charged at least four times for cheque bounce for an amount of over Rs. One Crore.

Further, if the cheque that has bounced is the one issued as an EMI towards repayment of a loan, the bank has all the rights to issue a legal notice and to deduct money from your active account.