Cheque Bounce Notice: Procedure, Remedy & Format

A cheque is considered a negotiable instrument as per Section 13 of the Negotiable Instruments Act, 1881. It acts as a promise to pay a certain sum of money to the person or entity mentioned on it. The use of cheques has become an integral part of the economy as they provide a convenient means of payment for various transactions. However, the issue of cheque bounce is a major concern. According to Section 138 of the Act, if a cheque is dishonoured, the person who issued the cheque can be prosecuted and punished with imprisonment for a term that may extend to two years or with a fine that may extend to twice the amount of the cheque, or both.

In addition to the provisions of the Negotiable Instruments Act, there are other laws that deal with cheque bounce. The Reserve Bank of India (RBI) has issued guidelines to banks on the handling of cheque bounce cases. The guidelines specify the time frame within which banks must inform the issuer of the cheque about its dishonour. The issuer must be given a period of 15 days from the date of receipt of the notice to make the payment. If the payment is not made within this period, legal action can be taken.

Reasons for Cheque Bounce

There are several reasons why a cheque may bounce. Some of the most common reasons are as follows:

1. Insufficient Funds: One of the primary reasons behind cheque bounce is insufficient funds in the account of the person who issued the cheque. When the cheque is presented for payment, the bank will return it as there are not enough funds in the account to cover the amount mentioned on the cheque.
2. Mismatch in Signature: Another reason for cheque bounce is a mismatch in the signature on the cheque. If the signature on the cheque does not match the signature on the bank records, the bank may refuse to honour the cheque.
3. Stale Cheque: A stale cheque is one that is presented for payment after a certain period. In India, a cheque becomes stale after three months from the date of issue. If a stale cheque is presented for payment, the bank may refuse to honour it.
4. Post-Dated Cheque: A post-dated cheque is one that is issued with a future date. If such a cheque is presented before the due date, the bank may refuse to honour it.
5. Irregularities in the cheque: If there are any discrepancies in the information mentioned on the cheque, such as the date, amount, or name of the payee, the bank may refuse to honour the cheque.
6. Closed or frozen account: If the bank account of the issuer of the cheque has been closed or frozen, the cheque will bounce.
7. Technical issues: Technical issues such as a problem with the bank's computer system or connectivity issues may also cause a cheque to bounce.

Legal Consequences of Cheque Bounce

Cheque bounce is a criminal offense in India and can result in legal action against the person who issued the cheque. The recipient of the bounced cheque can file a complaint under Section 138 of the Negotiable Instruments Act, 1881, within 30 days of the cheque being returned by the bank.

The person who issued the cheque will receive a legal notice, and if the payment is not made within 15 days, the recipient can file a criminal complaint in a magistrate court. The penalty for cheque bounce can be imprisonment for up to two years or a fine of twice the amount of the cheque or both.

The Reserve Bank of India has implemented several measures to reduce the incidence of cheque bounce, including the introduction of the Cheque Truncation System (CTS) and the National Automated Clearing House (NACH) to facilitate electronic payment transactions.

Steps to Prevent Cheque Bounce:

Cheque bounce can be prevented by taking the following steps:

1. Maintain Sufficient Balance: It is essential to maintain sufficient balance in the account to cover the amount of the cheque.
2. Verify Signature: The signature on the cheque should be verified before accepting it.
3. Avoid Post-dated Cheques: Post-dated cheques should be avoided as they may be presented before the due date.
4. Properly Fill the Cheque: The cheque should be properly filled, with no technical errors.
5. Electronic Transfer: Electronic transfer of funds can be used as an alternative to cheques, which eliminates the possibility of cheque bounce.

Jurisdiction in Cheque Bounce:

According to Section 138 of the Negotiable Instruments Act, a complaint for cheque bounce can be filed in any of the following places:

1. The place where the cheque was drawn (i.e., where the bank account of the person who issued the cheque is located).
2. The place where the cheque was presented for payment.
3. The place where the bank on which the cheque was drawn is located.

The complainant has the option to choose any of the above locations as the place for filing the complaint. However, once a complaint is filed in a particular location, subsequent complaints related to the same cheque must be filed in the same location.

In the case of K. Bhaskaran v. Sankaran Vaidhyan Balan, a two-judge bench examined the issue of territorial jurisdiction in cheque bounce cases. The court noted that the offense under Section 138 of the Negotiable Instruments Act can only be completed after a series of acts, including drawing a cheque, presenting it to the bank, the bank returning the cheque unpaid, giving notice to the drawer, and the drawer's failure to make payment within 15 days of receiving the notice.

The court held that the complainant can file a case in any court that has jurisdiction over any of the local areas where any of the five acts were done. To reach this decision, the court referred to Sections 177 to 179 of the Code of Criminal Procedure, 1973 (CrPC).

In contrast, in the case of Harman Electronics (P) Ltd. v. National Panasonic (India)(P) Ltd., a two-judge bench ruled that the court within whose limits the notice was issued cannot have territorial jurisdiction. This is because the cause of action arises from the communication of the notice, rather than the mere issuance of the notice. As a result, one of the acts mentioned in the K. Bhaskaran case was excluded in the Harman Electronics case.

Furthermore, in the case of Harman Electronics (P) Ltd. v. National Panasonic (India)(P) Ltd., the court rejected only one of the principles established in the K. Bhaskaran case, namely, that the place from where the notice was issued does not give rise to a cause of action. This rejection was justified since no branch of law recognizes that the place of notice issuance creates a cause of action. However, the Harman Electronics case did not overrule the other four principles established in the K. Bhaskaran case.

Legal Remedy and Procedure in Case of a Bounced Cheque

The legal remedy and procedure in case of a bounced cheque typically involves pursuing legal action against the person who issued the cheque, which may involve steps:

1. Contact the issuer of the cheque: You can contact the issuer of the cheque and inform them that the cheque has bounced. Sometimes, this can be due to a genuine error or oversight, and the issuer may be willing to rectify the issue by issuing a new cheque or making alternative arrangements for payment.
2. Send a demand notice: If the issuer does not respond or fails to make the payment, you can send a demand notice to the issuer of the cheque, demanding payment of the amount due within 15 days of receiving the notice. The notice should be sent via registered post or speed post to the address mentioned on the cheque.
3. File a complaint: If the issuer fails to make payment within 15 days of receiving the notice, you can file a complaint under Section 138 of the Negotiable Instruments Act, 1881, in the appropriate court. The complaint should be filed within 30 days of the expiry of the notice period.
4. Attend court hearings: You will need to attend court hearings and provide evidence to support your case. If the court finds the issuer guilty, they can be punished with imprisonment for a term that may extend to two years, or with a fine that may extend to twice the amount of the cheque, or with both.

Sample Format For A Demand Notice For Recovery of Money In The Case of A Bounced Cheque

Legal notice is imporant for recovery of money for cheque bounce case. Please find below sample cheque bounce notice format for money recovery.

To,

[Name and Address of the Issuer of the Cheque]

Dear Sir/Madam,

Sub: Demand for payment of cheque amount of [Amount in words and figures] dated [Date of the cheque] drawn on [Name of the Bank and Branch] bearing cheque number [Cheque Number]

We regret to inform you that the cheque dated [Date of the cheque] drawn on [Name of the Bank and Branch] bearing cheque number [Cheque Number] for an amount of [Amount in words and figures] issued by you in our favour has been dishonoured by your bank due to [Reason for the dishonour].

We had presented the cheque for encashment on [Date of presentation], and it was returned unpaid on [Date of the dishonour]. We had subsequently sent a legal notice to you on [Date of the notice] demanding payment of the amount due, but we have not received any response from you.

We, therefore, demand that you immediately pay the cheque amount of [Amount in words and figures] along with interest at the rate of [Rate of interest] from the date of the cheque till the date of payment, failing which we will have no option but to take appropriate legal action against you to recover the amount due to us.

Please take this as a final notice to settle the matter and avoid legal proceedings.

Thanking you,

[Your Name and Address]

[Date of the Demand Notice]

What is Section 138 of the Negotiable Instruments Act?

Section 138 of the Negotiable Instruments Act, 1881, deals with the offence of dishonour of a cheque. It provides for punishment for the issuer of a cheque who fails to make payment to the payee despite being given a legal notice for the same.

Can a complaint be filed for a cheque that is issued for a future date?

No, a complaint cannot be filed for a cheque that is issued for a future date as it is considered invalid until the date mentioned on the cheque.

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