Cheque Bounce

A cheque bounce occurs when a cheque is presented for payment but the bank refuses to honor it due to insufficient funds or other technical reasons. In India, cheque bounce is primarily governed by **Section 138 of the Negotiable Instruments Act, 1881. This section makes dishonor of a cheque due to insufficient funds or other reasons a criminal offense, subject to penalties. The provision aims to promote confidence in the use of cheques as a method of payment and ensures that individuals and businesses do not face financial losses due to dishonored cheques.

Key Provisions under the Negotiable Instruments Act

1. Section 138 – Dishonor of Cheque for Insufficiency of Funds:

   • Section 138 of the Negotiable Instruments Act, 1881 makes the dishonor of a cheque for lack of sufficient funds a criminal offense. If a person issues a cheque that bounces due to insufficient funds, they can be punished with imprisonment or a fine.
   • The section specifically applies to cheques issued in discharge of a legally enforceable debt or liability.

2. Other Provisions:

   • Section 139: This section creates a presumption that the cheque was issued in discharge of a debt or liability unless proven otherwise. It shifts the burden of proof onto the accused to show that the cheque was not issued for a legitimate purpose.
   • Section 142: The provision outlines the process for filing a complaint in cases of cheque dishonor, including the requirement to file the complaint within a specified time limit.

Key Requirements for Filing a Case under Section 138

For a cheque bounce case to be maintainable under Section 138 of the Negotiable Instruments Act, the following conditions must be met:

1. Dishonor of the Cheque: The cheque must be returned by the bank due to reasons such as insufficient funds, signature mismatch, or an expired cheque.
2. Demand for Payment: After the dishonor of the cheque, the payee (or holder) must send a legal notice to the drawer (the person who issued the cheque) within 30 days from the date of receiving the notice of dishonor from the bank.
3. Failure to Pay: The drawer has 15 days from the receipt of the notice to make the payment. If the drawer fails to make the payment within this period, the payee can file a criminal complaint under Section 138.

Steps in a Cheque Bounce Case

1. Cheque Dishonor: When a cheque is dishonored, the bank provides the holder with a cheque return memo stating the reason for dishonor (such as insufficient funds, closed account, signature mismatch, etc.).

2. Issuing a Legal Notice: After receiving the memo, the holder of the cheque (payee) must send a legal notice to the person who issued the cheque (drawer) within 30 days of receiving the memo. This notice informs the drawer about the dishonor and demands payment within 15 days.

3. Filing a Criminal Complaint: If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a complaint under Section 138 of the Negotiable Instruments Act in a Magistrate’s Court. The complaint must be filed within one month from the expiration of the 15-day period.

4. Trial in Court: After the complaint is filed, the court will take cognizance of the case and summon the accused for trial. During the trial, both the prosecution and defense present their arguments. If found guilty, the accused may be punished with imprisonment or a fine, or both.

Punishment for Cheque Bounce

1. Imprisonment: The punishment for a cheque bounce under Section 138 of the Negotiable Instruments Act can include imprisonment for up to two years.

2. Fine: The court may impose a fine that can be up to twice the amount of the dishonored cheque. This means that if the cheque amount is ₹50,000, the fine may be as high as ₹100,000.

3. Both Imprisonment and Fine: The court can impose both imprisonment and a fine, depending on the severity of the case.

Defenses Available to the Accused

The person accused of issuing a bounced cheque can defend themselves in several ways:

1. Lack of Liability: The accused may argue that the cheque was not issued in relation to any legally enforceable debt or liability.
2. No Intention to Defraud: The accused can argue that the cheque was issued in good faith and that the dishonor occurred due to a technical error or an innocent mistake, such as a bank error.
3. No Knowledge of Insufficient Funds: If the accused was unaware of insufficient funds in the bank account at the time of issuing the cheque, they may present this as a defense.
4. Cheque Was Stolen or Misused: In some cases, the accused may claim that the cheque was issued as part of fraudulent activities, such as theft or misuse by someone else.

Cheque Bounce and Civil Liability

In addition to the criminal penalty under Section 138 of the Negotiable Instruments Act, the payee may also have a civil remedy. The payee can file a civil suit for recovery of the cheque amount and any additional damages in a civil court. This is separate from the criminal prosecution for cheque bounce and may provide an alternative path to recover the debt.

Limitations for Filing a Cheque Bounce Case

1. Time Limit for Filing a Complaint: The criminal complaint for cheque bounce must be filed within one month from the date the 15-day period for payment has passed, i.e., 45 days from the date the cheque was dishonored.
2. Limitation for Civil Recovery: If the complainant wants to recover the money through a civil suit, they must adhere to the Limitation Act, 1963, which typically allows a period of three years to file a suit for recovery of a debt.

Conclusion

Cheque bounce cases in India are governed by the Negotiable Instruments Act, 1881, and the law provides both criminal and civil remedies for victims. While the law aims to discourage the dishonor of cheques, it also provides a robust framework for the defense. If you are dealing with a cheque bounce case, it is important to act promptly by sending a legal notice and filing a complaint within the stipulated time frame to ensure that the legal process is properly followed.