Understanding the Dishonour of Cheque in India

With the significant rise of trade and commerce in the country, the usage of cheques has increased and so have the cheque bouncing disputes. In this regard, the provisions of the Negotiable Instruments Act, 1881 (hereinafter referred to as the “Act”) play an important role as the fundamental object of the Act is to promote the efficiency of banking operations and ensure reliability in business transactions via cheques.

What is the Dishonour of a Cheque?

Whenever a cheque is drawn by any person on a bank account maintained by him and the cheque is returned unpaid for insufficiency of funds or the amount exceeds the arrangement made with the bank, it is termed as dishonour of a cheque for insufficiency of funds. The cheque issued must be in discharge of a debt or liability.

For the offence of dishonour of a cheque to be attracted, certain conditions must be met. The cheque must be presented to the bank within six months of its issuance or before its expiry date, whichever comes earlier. Additionally, the payee (person to whom the cheque is made payable) must send a written notice to the drawer (person who has issued the cheque) within 30 days of being informed by the bank about the bounced cheque. If the drawer fails to make the payment within 15 days of receiving the notice, then the dishonour of a cheque constitutes as an offence.

The offence of dishonour of a cheque amounts to a non-cognizable and bailable offence. Depending on the scenario, the case should be filed in the jurisdiction of the court where the bank branch or the drawer of the cheque maintains the account.

Key Elements of Dishonoured Cheques

  • Stop Payment: When the drawer of the cheque instructs its bank to “stop payment”, the offence under Section 138 of the Act would not be made out.
  • Account Closed: This occurs when a cheque is returned due to the closure of the bank account.
  • Signatures: If the signatures on the cheque do not match, it constitutes an offence of dishonour of a cheque.

The punishment for the dishonour of a cheque can include a jail term of up to two years, a fine up to twice the amount of the cheque, or both. However, the proceedings can be compromised with the consent of both parties or the accused may seek quashing of the complaint through a High Court petition.

Mediation and Civil Nature

The case of dishonour of a cheque can be settled through Mediation, as the Courts may refer such criminal compoundable cases to mediation. It is important to note that Section 138 of the Act is considered quasi-criminal in nature as the proceedings arise from a civil dispute but may result in a criminal consequence.

Conclusion

Understanding the legal aspects surrounding the dishonour of a cheque is crucial for both businesses and individuals involved in commercial transactions. While the Act provides a framework for addressing such disputes, navigating through the legal process effectively is essential for seeking redressal and resolution.