Cheque Bounce: Know the Law

With the significant rise of trade and commerce in the country, the usage of cheques has increased and so have the cheque bouncing disputes. In this regard, the provisions of the Negotiable Instruments Act, 1881 (hereinafter referred to as the “Act”) play an important role as the fundamental object of the Act is to promote the efficiency of banking operations and ensure reliability in business transactions via cheques.

What is the dishonour of a cheque?

Whenever a cheque is drawn by any person on a bank account maintained by him and the cheque is returned unpaid for insufficiency of funds or the amount exceeds the arrangement made with the bank, it is termed as dishonour of a cheque for insufficiency of funds. The cheque issued must be in discharge of a debt or liability.

When will the offence of dishonour of a cheque be attracted?

The cheque must be presented to the bank within six months of its issuance or before its expiry date, whichever comes earlier. The payee (person to whom the cheque is made payable) must send a written notice to the drawer (person who has issued the cheque) within 30 days of being informed by the bank about the bounced cheque. If the drawer fails to make the payment within 15 days of receiving the notice, then the dishonour of a cheque constitutes as an offence.

Is the offence of dishonour of a cheque bailable?

The offence amounts to a non-cognizable offence (a case in which a police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence.

Where should a case for dishonour of a cheque be filed if the cheque delivered for collection is through an account?

If the cheque is delivered for collection through an account, the case will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate, within whose local jurisdiction the branch of the bank where the payee in due course, maintains the account, is situated.

Where should a case be filed if the cheque is presented for payment over the counter?

The case in such a scenario will be tried by the court not inferior to that of a Metropolitan Magistrate or a Judicial Magistrate, within whose local jurisdiction, the branch of the bank where the drawer of the cheque maintains the account, is situated.

Can a cheque be presented twice for encashment?

Yes, a cheque may be presented for encashment on any number of occasions within the period of its validity. On each presentation of the cheque and its dishonour, a fresh right and not cause of action accrues. Cause of action arises only on failure to pay after notice.

What is a post-dated cheque?

It is a cheque with a future date written on it instead of the date on which the cheque is written. If on the date of the cheque liability exists or the amount has become legally recoverable, the Act is attracted.

What is “stop payment”?

When the drawer of the cheque instructs its bank to “stop payment”, then an offence under Section 138 (Dishonour of cheque for insufficiency, etc., of funds in the account) of the Act would not be made out.

What is “account closed”?

It is the return of a cheque when a bank account has been closed by the bank. It is similar to a situation where the cheque is returned on account of insufficiency of funds.

What will happen if the signatures do not match?

If the signature of the drawer does not much, it would constitute to be an offence of dishonour of a cheque.

What is a presumption of notice?

Once notice is sent to the accused by registered post by correctly addressing to the drawer of the cheque, the service of notice is deemed to have been effected.

Can a blank cheque be presented?

Yes, if a signed blank cheque is voluntarily handed over to a payee, towards some payment, the payee may fill up the amount and present the cheque.

Can an interim compensation be granted to the complainant?

Yes, the court may order the drawer of the cheque to pay interim compensation to the complainant which shall not be more than 20% of the amount of the cheque. The Supreme Court in Rakesh Ranjan Shrivastava v. State of Jharkhand & Anr. held that the power of the court to grant interim compensation, is not mandatory but discretionary and needs to be decided after evaluating the merits of the case.

What is the punishment for the dishonour of a cheque?

The sentence prescribed is up to two years, or, with a fine which may extend to twice the amount, or, with both.

Can an offence of dishonour of a cheque be compromised?

Yes, it can happen with the consent of both the parties. The court also has the power to close the proceedings and discharge the accused if the complainant has been compensated.

Can a complaint for the dishonour of a cheque be quashed by the High Court?

Yes, if an accused wants the proceedings to be quashed, he/she needs to file a quashing petition under Section 482 CrPC and prove that the trial would be an abuse of process of court.

Can the proceedings be held online?

Yes, numerous cases under Section 138 of the Act, dealing with the dishonour of cheques have been heard online but this depends upon the facts and circumstances of every case.

What happens when an appeal is filed against conviction?

If an appeal is filed against conviction, the Appellate Court can order the drawer to deposit such sum which shall be at least 20% of the compensation or fine awarded by the trial court.

Are the proceedings civil or criminal in nature?

Section 138 of the Act is a civil sheep in a criminal wolf’s clothing. It is quasi-criminal in nature. The proceedings arise from a civil dispute but may result in a criminal consequence.

Can the case of dishonour of a cheque be resolved through Mediation?

Yes, the case of dishonour of a cheque can be settled by Mediation. The Courts may refer a criminal compoundable case as one under Section 138 of the Act to mediation.

Muneeb Rashid Malik is an Advocate practicing before the Hon’ble Supreme Court of India and tweets @muneebmalikrash.

(The contents of this article are intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.)