Cheque bounce, cheque dishonor, or non-payment of the cheque is a serious offense under section 138 of the negotiable Instruments Act, 1881. It is always advisable to not issue cheques when you have insufficient funds in your bank.
Section 138 of the Negotiable Instruments Act, 1881 protects the payee of cheques against fraudulent practices by the payer. But in order to enjoy protection under section 138 of the Negotiable Instrument Act, 1881 a notice for cheque bounce must be sent to the payer intimating him that his cheque was dishonored within 30-days of the return of the cheque as per the cheque bounce law of India.
A cheque bounce notice is a serious notification sent to the payer of the cheque that his issued cheque was dishonored for reasons mentioned therein and that he must arrange an alternative way of payment within a reasonable time or else the payee has every right to move court under section 138 of the negotiable instruments act.
How to issue cheque bounce notice?
Section 138 notice or cheque bounce notice can be issued in two ways.
- Under your own name.
- By an advocate on behalf of you [Recommended]
It is always advisable to send the section 138 notice under the name and seal of an advocate. Advocate notice for cheque dishonor carries more authority than a normal notice by the payee himself.
How does a lawyer notice for cheque bounce look like?
The cheque bounce notice format is attached below. This was issued by an advocate under his name and seal.
When 138 notice can be issued?
A section 138 notice or a cheque bounce notice can be issued as a matter of right if certain conditions are fulfilled:
- The cheque must have been presented within 6 months of its issue. (It must be valid)
- It must be paid towards any debt or liability and not charity or gift.
- It must be returned by the paying banker because of Insufficient funds.
Legal Action for Cheque Bounce
A 138 notice or a notice for cheque bounce must be served on the payer requesting him to make alternative arrangements to pay the default sum of money within a reasonable period of time. (Say 15 days of receiving the notice) and if he/she fails to pay then legal action under section 138 of the Negotiable instruments act can be taken.
The payer of the cheque can be liable for an imprisonment of up to 2 years or with a fine up to two times that of the returned cheque or with both fine and imprisonment. It must be noted that the notice under section 138 must be served within 30 days from the return of the cheque by the banker.
If the payer of the cheque still does not pay the defaulting amount within 15 days of receiving the notice, the payee has the legal remedy to file a case at the criminal court. Once the case is taken up, the judge would issue a summon and the defaulting payer has to answer before the judge. If found guilty he can either be imprisoned for up to 2 years or with a fine of up to two times that of the returned cheque or with both.
Cheque Bounce for Companies
If the defaulting party or the payer of the cheque whose cheque was dishonored is a company then it will be dealt with under section 141 of the Negotiable Instruments Act, 1881.
Since the company is a separate entity who shall be charged with the offense?
Section 141 states that any person who was in charge of or was responsible for the conduct of such business shall be held liable. Provided that he/she shall not be liable if it is proved that such a thing happened without their knowledge or that he /she had exercised all due diligence to avoid it from happening.
Reasons for Cheque Dishonour
There could be a variety of reasons why a could be dishonored by the banker such as:
- Signature mismatch or Mismatch of other data
- Stop payment instruction
- Alterations and overwriting
- Post-date Cheque
- Stale cheque i.e cheques presented beyond its validity period
The payer of the cheque can be held liable under section 138 only if one of the two conditions for dishonor are satisfied:
- Either because of the amount of money standing to the credit of that account is insufficient to honour the cheque
- Or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank.
What does a returned cheque from bank look like?
A returned cheque is notified to the payee along with the return memo report where the reasons and other details are mentioned for the dishonor. You can see it from the below image.
How do I write legal notice for cheque bounce?
In case you want to write the notice yourself instead of taking help from a lawyer, you need to mention these details:
- The details of transaction
- The details of cheque bounce i.e date of issue, date of presentation of cheque etc
- The details of the returned cheque along with the reasons of dishonour as mentioned in the cheque return memo.
- A reference to Section 138 Negotiable Instrument Act, 1881 [Mandatory]
- Details of the cheque number, date and amount.
- Mention details of arrangememt for alternative payment.
More details about Parties to a cheque
Here’s a quick glossary of terms that you might be confused with:
- Payer: It is the person who issues the cheque. He is also called the author of the cheque. He also signs the cheque.
- Payee: It is the person in whose favour the cheque was issues. In other words, it is the person that was supposed to recieve the money from the cheque.
- Paying Banker: It is the bank who pays the money on behalf of the payer.
Frequently asked questions
A must under section 138 Negotiable Instruments Act, 1881 must be served within 30 days of getting the cheque returned unpaid from the bank.
The payee must serve a notice on the payer that his cheque was dishonored through an advocate within 30 days of receiving the cheque unpaid from the bank.
Yes, cheque bounce cases are heard at the criminal court. It is civil in nature but penal provisions such as the imprisonment of up to 2 years were later added.
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