What Should You Do If A Cheque Bounces?
A cheque bounce is among the common financial offences which can land the issuer into legal trouble and damage his or her credit rating. In India, the number of pending court cases relating to cheque bounce offences is huge. A cheque is bounced if the issuer writes a bad cheque - due to technical reasons like mismatch of signature or overwriting, or also when there are insufficient funds in the account as result of it is not processed by the bank. The cheque is then returned unpaid or dishonoured.
Repeat offences can have serious repercussions. The offender may be slapped with a huge bounced-cheque fee or even a prison term. The bank may stop the cheque book facility or even close your account. Although the Reserve Bank of India states that such action can be taken only if cheques, valued Rs 1 crore or above, have bounced more than four times.
MakaaniQ tells you more about dishonour of cheques and the legal recourse in such cases:
Penalty by the bank
In case a cheque is bounced, both the defaulter and the payee are charged by their respective banks. If the bounced cheque is against the repayment of a loan, you would have to additionally incur late payment charges along with the penalty fee charges by the bank.
Some customers make use of their overdraft account wherein the banks would cover cheques which would otherwise bounce. The customer will pay interest on the outstanding balance of an overdraft loan.
Negative impact on credit score
When availing a home loan, it is important to check if your account has sufficient money. If the processing fee cheque gets bounced, the bank might reject the sanctioned loan immediately. Thus, ensure you always maintain the minimum average balance and avoid any irregular or unusual bank transactions. Recurring cheque bounces can affect your financial credit history which can make it difficult for you to avail loans in future.
Facing criminal charges
If a cheque is bounced citing insufficient funds in bank account, it is a criminal offence and the payee - the person or the bank - can file a complaint under Section 138 of the Negotiable Instruments Act. The bank immediately issues a ‘Cheque Return Memo’ stating the reason for non-payment, when a cheque bounces for the first time. The holder is given a chance to resubmit the cheque to the bank within a period of three months of the date mentioned on it.
The aggrieved party can also legally prosecute the defaulter by sending a legal notice within 30 days of receiving the cheque return memo. Mentioning all important facts pertaining to the case in the notice is vital. This includes nature of the transaction, amount, date of depositing the cheque and when it was dishonoured by the bank. If the cheque issuer or drawer fails to make a fresh payment within a month of receiving the notice, the holder has the right to file a criminal complaint against him.
However, if the aggrieved party fails to file the complaint within 30 days, the court will not entertain the suit unless the delay is justified with a valid reason. If the drawer is found guilty as a wilful defaulter, he will be charged with a jail term of two years or a fine which is twice the cheque amount, or both. The defaulter is also given a chance to appeal to the sessions court within a month of the date of judgment of the lower court.
Facing civil suit
Usually, a separate civil suit for recovery of money, including the cost is borne and the lost interest, is filed in a cheque bounce case as filing a criminal case does not help in recovering the pending dues. However, the aggrieved party may file a cheating case under Section 420 of the Indian Penal Code. But, under the notified Negotiable Instruments (Amendment) Act, the complainant can file a complaint in the city where he is based or where the cheque was deposited. This makes it easier for the victim to take a legal recourse.
Things to remember
It is to be noted that these remedies are possible only if the pending debt or liability can be established. For instance, the holder cannot sue the defaulter if a bounced cheque was issued as a gift or donation.
It is wise to keep track of available balance and maintain extra cash in your account as a buffer. In case, you find out there is insufficient money in your account, you can inform the payee in writing and issue stop payment/cancellation at your bank or pump in funds into your account before the date of the cheque.