insufficient funds, the cheque is said to have bounced.
Let us see what Section 138 of the Negotiable Instrument Act is,
“ Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended to two years’], or with fine which may extend to twice the amount of the cheque, or with both.”
A cheque bounce can occur for several reasons, but if a cheque bounces due to insufficient funds in the drawer’s account, it amounts to an offence under the Act. The bank must reject the cheque presented for payment with a return memo stating the reason as insufficient funds. In such a case, the payee of the cheque can issue a cheque bounce notice to the drawer demanding to pay the cheque amount.
The various reasons due to which cheque bounce can occurs:
- Insufficient account balance – If there is not enough balance in the drawer’s account to make the payment of the cheque, the bank will reject and return the cheque to the payee with a memo stating insufficient funds to pay the cheque amount.
- Expired validity of cheque – Once the drawer issues the cheque, it must be presented for payment within three months. The cheque expires if it is not presented to the bank within three months. If the expired cheque is given to the bank, it bounces.
- Overwriting – If the signature of the drawer or cheque amount or any other statement has been overwritten on the cheque, the cheque bounces for overwriting.
- Damaged cheque – If a cheque is damaged or disfigured and the details are not visible or have marks or stains, the cheque will bounce.
- Signature mismatch – If the drawer’s signature is unclear or absent or does not match the one in the bank’s data, the cheque will bounce.
- Mismatch of amounts or digits – If the cheque amount mentioned in words and figures does not match, the cheque will bounce.
But Cheque bounce due to insufficient bank balance will be result into offence under Section 138 of Negotiable Instrument Act.
Once cheque bounce occurs then there will be certain steps to be taken as follows:
- Resubmission of cheque- When the cheque bounces due to overwriting, mismatch of signature, mismatch of the figures and words of the cheque amount or damaged cheque, the payee can ask the drawer to submit another cheque to rectify the mistake. If the drawer does not agree to submit another cheque, the payee can initiate civil action against the drawer to pay the cheque amount due to him and not the cheque bounce.
- Cheque Bounce Notice under Section 138 of the Negotiable Instruments Act- A cheque bounce notice is issued under Section 138 of the Negotiable Instruments Act when a cheque bounces due to insufficient funds in the drawers’ account to make the cheque amount payment. If the cheque bounces for any other reason other than insufficient funds, the cheque bounce notice cannot be issued, and the payee can demand resubmission of the cheque.
- Issuance of Cheque Bounce Notice- When the cheque bounces due to an insufficient amount, the first step is to demand the payment of the amount by issuing a cheque bounce notice in writing by post under the Negotiable Instruments Act. The payee can issue a cheque bounce notice within 30 days of an intimation sent by the bank and the bounced cheque stating that the bank cannot make the cheque payment due to an insufficient amount.
The format of the cheque bounce notice is as follows:
- The name and address of the drawer of the cheque.
- The name and address of the payee.
- Information of the cheque presented to the bank for payment.
- Details of the cheque number, date and amount.
- Date of return of cheque.
- Reason for cheque bounce.
- Request for the immediate arrangement of the payment of the amount.
- Reference of Section 138 of the Negotiable Instruments Act.
Legal Action for Cheque Bounce:
When the cheque bounces, the first step is to send the cheque bounce notice to the drawer and request drawer to pay the amount. If drawer does not comply with the notice, then legal action can be taken against drawer. For initiating legal action and filing a suit in the court against the drawer, the following conditions must be satisfied-
- The payee should present the cheque within three months of the date of its issue.
- The bank should reject the cheque due to insufficient funds.
- The payee makes a demand for the payment of the cheque amount by issuing a cheque bounce notice in writing to the drawer by post.
- The cheque bounce notice must be sent within thirty days of the receipt of information of return of cheque by the bank.
- The drawer fails to pay the amount of cheque to the payee within fifteen days of receipt of the cheque bounce notice.
If the above conditions are satisfied, then legal proceedings can be initiated in the court within thirty days from the expiry of fifteen days’ time for cheque amount payment after receipt of cheque bounce notice by the drawer. The suit for cheque bounce can be initiated in the court of the location where the cheque was presented for payment. The case will be filed under Section 138 of the Act.
Section 138 of The Negotiable Instrument Act
Section 138 of the Negotiable Instruments Act provides that cheque bounce for insufficient funds is an offence and punishable with imprisonment. It provides that where a person draws a cheque on an account maintained by him for the payment of money to another person, and it is returned by the bank unpaid because of insufficient funds to honor the cheque, the drawer of the cheque commits an offence.
The person must draw the cheque for discharge of any legally enforceable debt or liability. The cheque must be returned by the bank because the amount of money standing to the credit of the drawer’s account is insufficient or exceeds the amount arranged to be paid from the drawer’s account by an agreement made with the bank.
The drawer can be punished with imprisonment for a term not exceeding two years or a fine that can extend to twice the amount of the cheque, or both for the offence of cheque bounce.
Section 144 of The Negotiable Instrument Act
Section 144 of the Negotiable Instruments Act provides that where cheque bounce has taken place by cheque issued by a company, then every person in charge and responsible for the conduct of the business of the company at the time the offence was committed is guilty of an offence. This section provides that the cheque bounce for insufficient funds is an offence when the drawer of the cheque is a company.
When the drawer of the bounced cheque is a company, every person in charge and responsible for conducting the business of the company and the company is guilty of the offence of cheque bounce and can be punished accordingly.
Where a cheque bounce offence is committed by a company, and it is proved that the offence was committed by the company with the consent, negligence or convenience of the director, secretary, manager or other officers of the company, such persons will be deemed guilty and liable to be punished accordingly.
How to Respond to a Cheque Bounce Case:
The first step would be to reply to the legal notice for your defense or pay the cheque amount to avoid any further legal proceedings. But before replying, you must consult a legal practitioner who is an expert in cheque bounce. If the cheque amount is paid at the starting stage, the matter will be resolved then and there.
The reply for the legal notice does not possess any specific format but make sure that you mention the following subjects in the reply:
- Address the reply of the legal notice to the lawyer of the drawee.
- Your description, name, and address.
- Facts of the issue: date of issue, cheque-return memo, etc.
- Rebuttal of the allegations made against you.
- Refrain from admitting to any allegation against you mentioned in the notice.
- Any complaints against the drawee of the cheque.
- A summary of your defense against the allegations mentioned in the legal notice for cheque bounce.
- The reply to any legal notice must be sent on a lawyer’s letterhead.
The failure to reply to the legal notice or pay the cheque amount within 15 days can motivate the drawee to legally file a complaint at the court, which would initiate the legal proceedings against you.
Conclusion
The cheque bounce cases had seen tremendous rise with as much as 40 lakhs cases pending before the courts as said by the Supreme Court of India. But, after the amendments made in 2015 and 2018 which came with a promise to dispose of the cases at the earliest and ensure that the victims get relief, has brought transparency in the system by preventing the people from defaulting on their payments. Therefore, the process under Section 138 has helped in facilitating commercial transactions, as people now feel more secure. This has also helped in keeping up with the modern banking system.