Tuesday, February 28, 2017

How to deal with cheque bounce cases?

Cheque bounce is one of the most frequent offences in the country, with over 40 lakh pending cases in the Supreme Court. We see a lot of people facing the incidents of ‘cheque bounce’ in our daily lives. In view of demonetization and the move towards cashless transactions, the Govt is mulling changes in the law to make the harsher punishment for 'cheque bounce' cases.

Cheque is a kind of bill of exchange and is enclosed the Negotiable Instrument Act (hereinafter referred as the Act). In India, Cheque bounce is a criminal offence.
Cheques are issued for the reason of securing proof of payment. However, cheques remain a reliable method of payment for many people. Crossed and account payee cheques are not negotiable by any person other than the payee.  It has to be deposited into his bank account. It is always advisable to issue crossed “Account Payee Only” cheques in order to avoid its misuse.  It may be better to date the cheque invariably.  A cheque is valid for six months only, from the date specified in the cheque for payment.  After the period of six months, that cheque may be named as a ‘stale cheque’. Blank cheques are not advisable.

A cheque may bounce due to insufficient funds, the amount mentioned in the cheque exceeding the amount which has been arranged to be drawn from the account by virtue of a prior arrangement or any other technical reason, such as signature mismatch, both the defaulter and the payee are charged by their respective banks.

If the cheque gets bounced, send a demand notice to the drawer, alarming to take up proceedings if the amount due is not paid. The warning of prosecution usually ends in prompt settlement (if the drawer is an individual, the proceedings would occur under Section 138 of the NI Act. Also in the case of a company, its managing director can be personally prosecuted under Section 141).  It must be sent within 30 days from the date you identified that the cheque has bounced. There is no prescribed format for this notice. The purpose of this notice is to demand payment and inform the issuer that if payment is not made within 15 days, the person will be prosecuted.

After the demand notice has been sent, the drawer asks you to present the cheque again and the validity of the cheque remains it is yet again dishonoured, the drawer’s time limit under the demand notice does not raise. The dishonour of a cheque due to stopped payment is also covered under Section 138 of the NI Act.

Bank Penalty

For most banks, the penalty charges for cheque outward return are close to Rs. 300, while charges for cheque inward return are about Rs. 100. The penalty charges change from one bank to another and are different for different account types. Premium accounts mostly have higher penalty charges. A bounced cheque can dent the financial credit history of a drawee.

 Impact on CIBIL Score

A CIBIL score is critical for your business since it can invariably affect your equation with the investors or the banks when you approach them for your loan in the future. Even a single bounce can impact your CIBIL score.

Which court to be approached?

As per the second ordinance related to Negotiable Instrument Act the accuser can approach the court under whose jurisdiction the bank, where the cheque was presented. But before approaching the court of law make sure that the bounced cheque would have been issued for the discharge of legal duty and must not have been given as a gift, donation and check the validity of cheque. Only that cheque which has legal obligation can be enforced in the court of law.

Punishment & penalty

On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue summons and hear the matter. If found guilty, the offender can be punished with a monetary penalty of twice the amount of the cheque or imprisonment for a term which may be extended to two years or both. Also, the bank has the right to stop the cheque book facility and close the account for repeat offences of bounced cheques.
The drawer gets 15 days time from the date of receipt of the notice. If the drawer does not pay till the expiry of the 15 days time, the payee can proceed to file a complaint in the court of the Jurisdictional Magistrate within one month from the date of expiry of 15 days prescribed in the notice.

[1] 1999 ISJ (BANKING) 0433; 1999 (1) APEX C.J. 0624; 1999 AIR (SCW) 1637
[2]  (1999) BANKING CASES (BC) 133 (17/03/1998
[3] (1997) 89 COMPANY CASES 663 (10/01/1997)

 Procedure to file a complaint

One can file a suit for recovery of the cheque amount along with the cost & interest under order XXXVII of Code of Civil Procedure,1908,(which governs the suit in summary trial) and can also file a criminal complaint u/s 138 of Negotiable Instrument Act for punishing the signatory of the cheque for having committed an offence. This action can be taken only after giving prior notice to the other party and after the expiry of 15 days after the notice has been received by the drawer.
But if the payee justifies the delay with sufficient reasons, he may make an application before the magistrate along with the complaint and seek to condone of delay.  Perception of the complaint may be taken if the Court is satisfied that the payee had sufficient reasons for the delay in filing the complaint within the prescribed period. Must consult an accomplished lawyer in this field.

In case you do not file criminal charges against the issuer, accused can get away with only a small fine paid to the bank for a bounced cheque. However, if you file a civil or criminal case against accused, the NI Act, 1881 would apply.
Section 138 of the Act states that any bounced cheque is punishable under the Act and can lead to up to two years of imprisonment, a monetary refund or both.
According to RBI guidelines, banks can stop issuing cheque book facilities to any customer booked for a bounced cheque. The minimum stipulated rate of offence is set as at least four times on cheques valued over Rs.1 crore.

 We do not guarantee the accuracy or completeness of information given here.
Never rely upon information in this article in place of seeking professional legal advice. It is always preferable to locate an attorney who has specialized in the respective field. Start a search for best lawyers in your town and get your legal answers in minutes. For online legal consultance from the best lawyer for cheque bounce cases, you can visit the biggest online legal solution www.licit.ooo or can download the app  https://goo.gl/L8GeYk

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