What If A Cheque Bounces?

A cheque may be dishonoured for various reasons, including insufficient funds in the account or a mismatch of signatures. But, what should be done if you land a bad cheque?

Filing a criminal complaint

A bank issues a cheque return memo, stating the reasons for non-payment when a cheque bounces for the first time. The holder is given a chance to resubmit the cheque to the bank within three months of the date mentioned on it.

The other option is to legally prosecute the defaulter. As the first step, a legal notice is sent to the defaulter within 30 days of receiving the cheque return memo. It is important to mention all relevant facts of the case, including the nature of the transaction, amount, date of depositing the cheque, when it was dishonoured by the bank, in the notice. If the cheque issuer fails to make a fresh payment within a month of receiving the notice, the holder has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act. 

Do remember that if you fail to file the complaint within 30 days, your suit will not be entertained by the court unless you show sufficient cause for the delay. On receiving the complaint, the court will hear the matter. If the defaulter is found guilty, he can be punished with a jail term of two years and a fine, which can be twice the cheque amount, or both.

However, the law gives the defaulter a chance to appeal to the sessions court within a month of the date of judgment of the lower court. Alternatively, a cheating case may also be filed under Section 420 of the Indian Penal Code, but the above-mentioned recourse is especially dedicated to cheque-bounce cases.

Filing a civil suit

While filing a criminal case is helpful in taking a defaulter to task, it may not necessarily help recover the pending dues. Hence, it's advisable to file a separate civil suit for recovery of the cheque amount, along with the cost borne and the lost interest.

Under the notified Negotiable Instruments (Amendment) Act, the complainant can file a complaint in the city where he is based or where the cheque has been deposited, making it easier for the victim to take a legal recourse.

Exceptions

These remedies are available only if the pending debt or liability can be established. For example, if a bounced cheque was issued as a gift or donation, the holder cannot sue the defaulter.

Risk faced by defaulters

Apart from a prison term or a heavy fine, the bank can also stop the cheque book facility and close the account for repeat offences. However, the Reserve Bank of India states that such action can be taken only the cheques valued at over Rs 1 crore have bounced more than four times.