Check Bounce: Meaning, Reasons, Penalties and Legal Action in India
A check is a common payment method used by individuals and businesses to transfer money from one bank account to another. However, sometimes a bank refuses to process a check. This situation is known as a check bounce or check dishonour.
Check bounce can create financial problems for both the person issuing the check and the person receiving it. In India, check dishonour may also lead to legal consequences under the Negotiable Instruments Act, 1881.
its common causes, legal provisions, penalties, and the steps a person can take after a check is dishonoured.
What Is a Cheque Bounce?
A cheque bounce occurs when a bank refuses to honour a cheque presented for payment. This can happen because the account does not have sufficient funds, the signature does not match bank records, or there is another issue with the cheque.
For example, suppose Rahul issues a cheque for ₹20,000 to Amit, but Rahul's bank account does not have enough money. If the bank refuses payment for insufficient funds, the cheque is said to have bounced.
The bank generally provides a reason for the dishonour through a cheque return memo.
Common Reasons for Cheque Bounce
1. Insufficient Funds
This is one of the most common reasons for cheque bounce. It occurs when the account balance is insufficient to cover the cheque amount.
2. Signature Mismatch
If the signature on the cheque does not match the signature registered with the bank, the bank may reject the cheque.
3. Incorrect Cheque Details
Incorrectly written amounts, discrepancies between the amount in words and figures, or other errors may result in the cheque being returned.
4. Expired Cheque
In India, a cheque is generally valid for three months from its date of issue. A cheque presented after its validity period may be rejected.
5. Account Closed
If the person issuing the cheque has closed the bank account, the bank will generally not process the cheque.
6. Stop Payment Instructions
A cheque may be dishonoured if the account holder has instructed the bank to stop payment. The reason for issuing the cheque and the circumstances of dishonour can matter when determining any legal consequences.
7. Alterations or Damaged Cheques
Unauthorised alterations, incomplete information, or damage that prevents the bank from processing the cheque may also cause rejection.
Cheque Bounce Law in India
Cheque dishonour is addressed under the Negotiable Instruments Act, 1881.
Section 138 of the Act deals with cheque dishonour for reasons such as insufficient funds or exceeding an arrangement with the bank, subject to the section's legal requirements.
For Section 138 to apply, the cheque generally must have been issued towards the discharge, wholly or partly, of a legally enforceable debt or liability. Not every bounced cheque automatically results in criminal liability.
Penalty for Cheque Bounce in India
Under Section 138, a person found guilty may face:
- Imprisonment for a term that may extend to two years.
- A fine that may extend to twice the amount of the cheque.
- Both imprisonment and a fine.
The applicable consequences depend on the facts of the case and the court's decision.
Banks may also charge cheque-return fees according to their applicable policies. These bank charges are separate from any legal penalty.
What to Do If Your Cheque Bounces
If you receive a cheque that is dishonoured, consider taking the following steps.
Step 1: Collect the Cheque Return Memo
Ask your bank for the return memo, which identifies the reason the cheque was dishonoured.
Step 2: Send a Written Demand Notice
For a potential Section 138 case, the payee or holder in due course must generally send a written demand notice to the cheque issuer within 30 days of receiving information from the bank about the dishonour.
Step 3: Allow the Payment Period
The cheque issuer generally has 15 days from receipt of the notice to pay the cheque amount.
Step 4: Consider Legal Action
If the issuer does not make payment within the prescribed period, a complaint under Section 138 may be filed, subject to the applicable legal requirements and limitation periods.
A complaint is generally required to be filed within one month from the date the cause of action arises, subject to the court's power to condone delay where legally permitted.
Step 5: Consult a Lawyer
A lawyer can review the cheque, return memo, debt documents, notices, and dates to determine the appropriate legal remedy.
How to Avoid Cheque Bounce
Both cheque issuers and recipients can take steps to reduce the risk of cheque dishonour.
1. Maintain sufficient funds in your bank account.
2. Check the cheque amount in words and figures.
3. Ensure that your signature matches the bank's records.
4. Write the correct date and payee name.
5. Avoid unauthorised alterations.
6. Present the cheque within its validity period.
7. Keep copies of cheques, payment records, and relevant communications.
Frequently Asked Questions (FAQs)
1. Is cheque bounce a criminal offence in India?
Cheque dishonour can lead to criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, when the statutory requirements are satisfied. Every bounced cheque does not automatically constitute an offence.
2. What is the time limit for sending a cheque bounce notice?
Generally, the written demand notice must be sent within 30 days of receiving information from the bank about the cheque's dishonour.
3. How much is the penalty for cheque bounce?
Under Section 138, the maximum punishment can include imprisonment up to two years, a fine up to twice the cheque amount, or both, if the person is found guilty.
4. Can I take legal action if someone gives me a cheque without sufficient funds?
Yes, you may be able to initiate proceedings under Section 138 if the cheque relates to a legally enforceable debt or liability and the applicable legal requirements are met.
5. Is a bounced cheque valid after three months?
A cheque is generally valid for three months from its date. After that period, the bank may reject it as stale. You can ask the issuer for a fresh cheque or use another agreed payment method.
Conclusion
Cheque bounce is an important banking and legal issue in India. It can occur because of insufficient funds, signature mismatches, expired cheques, and other reasons.
Understanding the Negotiable Instruments Act, 1881, and following the prescribed notice and complaint timelines can help individuals and businesses protect their legal rights. If you are involved in a cheque bounce dispute, keep all relevant documents and seek professional legal advice where necessary.
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