Tag: Bank cheque dishonour

Section 138 Cheque Bounce Notice Format: Protecting Rights with a Cheque Bounce Notice

Cheque bounce, or the non-payment of a cheque, is a serious offense in India that can lead to imprisonment or fines under Section 138 of the Negotiable Instruments Act. When a cheque bounces, the cheque beneficiary must issue a notice to the cheque issuer within 30 days of the cheque’s return to safeguard their rights under this section. This cheque bounce notice serves as a formal and serious notification to the issuer, indicating that legal action will follow if payment is not made promptly.

To ensure the validity of the notice, it must reference Section 138 of the Negotiable Instruments Act, include details such as the date the cheque was presented, the reason for non-payment, and a request for the cheque issuer to arrange for immediate payment through alternate means. The notice must be delivered within 30 days of the cheque’s return.

Cheque-Bounce-Notice-Format-Download

Steps to Issue a Cheque Bounce Notice

Creating a cheque bounce or Section 138 notice can be easily accomplished using the IndiaFilings Live Edit feature. Once the document is ready, it can be printed on plain white paper or the business’s letterhead and sent to the cheque issuer. The notice should include the name of the cheque beneficiary, the name and address of the cheque issuer, the date of the cheque’s return, the reason for its return, a request for immediate alternative payment, and a statement indicating that the notice is issued under Section 138 of the Negotiable Instruments Act.

It is crucial to send the Cheque Bounce notice via registered post to formally record the date of issuance. One copy of the notice should be kept by the cheque beneficiary, while the other must be sent to the cheque issuer.

When Cheque Bounce Notice Can Be Issued

To issue a cheque bounce notice and get legal recourse, the following conditions must be satisfied:

  • The cheque must have been provided towards a liability.
  • The cheque should have been presented by the beneficiary within a period of 6 months of its validity.
  • The cheque must have been returned by the bank due to insufficient funds.
  • The payee makes a demand for the payment by giving a cheque bounce notice in writing, within 30 days of the receipt of information by him from the bank that funds are insufficient.
  • The cheque drawer fails to make payment of the said amount of money within 15 days of the receipt of the cheque bounce notice.
  • Legal action is initiated within one month of the date on which the cause-of-action arises.

Initiating Legal Action for Cheque Bounce

The following steps must be followed to issue a cheque bounce notice and take legal action:

  1. Cheque bounce notice must be issued by the payee to the defaulter, within 30 days of dishonor of cheque, by registered post (or Speed Post) acknowledgement due. The cheque bounce notice must be proper format, with information like nature of transaction, amount, date of cheque deposit, date of cheque bounce, reason for cheque bounce and request to make payment within 15 days.
  2. If the cheque defaulter fails to make payment within 15 days of cheque bounce notice, the payee should file a criminal case in a court within 30 days from the expiry of notice period of 15 days. Cheque bounce complaints must be filed in a court in the city where the cheque was presented.
  3. Once the case is filed, the court will hear the case and issue summons under Section 138 of the Negotiable Instruments Act.
  4. The cheque defaulter would then have to submit surety and appear before the Court for resolution of the matter.

Section 138 of Negotiable Instruments Act

138. Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid. either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice. to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless:

  • The cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
  • The payee or the holder in due course of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
  • The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.-For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.

Explanation: For the purposes of Section 138 of Negotiable Instruments Act, “debt or other liability” means a legally enforceable debt or other liability.

Section 141 of Negotiable Instruments Act – For Companies

242. Offences by companies. If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence. Where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

FAQ’s

Who can send a notice under Section 138 for cheque bounce?

Only the payee can issue the notice under Section 138 to the defaulting drawer. However, the payee can issue the notice under Section 138 of the Negotiable Instruments Act through an advocate or legal firm.

How to know if a cheque presented for payment is bounced?

When the drawee bank finds out that it is not possible to pay the cheque amount to the payee due to any reason, it issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The payee’s banker then gives the dishonoured cheque and the memo to the payee. When the payee receives the cheque return memo and the dishonoured cheque, the cheque is considered bounced.

What is ‘Cheque Return Memo’?

The cheque return memo is a memo informing the payee’s banker and the payee about the dishonour of a cheque. When the cheque is dishonoured, the drawee bank immediately issues a cheque return memo to the payee’s banker mentioning the reason for non-payment. If the reason for non-payment of the cheque is insufficient funds, the payee can issue a notice under Section 138 to the drawer.

Can the drawer get bail if a complaint is filed for the dishonour of a cheque?

Yes since the dishonour of a cheque under Section 138 is a bailable offence. A bailable offence means that a person can get bail if a complaint is made against him. But, in the case where after getting bail, a person fails to appear before the court on the specified date, the court can issue a non-bailable warrant against him/her. The police can arrest the person in case of a non-bailable warrant.

Can the drawer get another chance to honour the cheque after its dishonour?

After dishonour of cheque, a chance will be given to the drawer to honour the same cheque in the form of a written notice to immediately repay the cheque amount. The notice period of 15 days will be specified in the notice sent to the drawer. There will be no offence committed by the drawer if he/she pays the complete amount within the said notice period of 15 days.

Dishonour of Bank Cheques under the Negotiable Instruments Act, 1881

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.