Dishonour of cheque: Legal and moral wrong
What an author likes the most to write is his signature at the corner of a cheque, but what if that cheque returns back?
A cheque is a piece of paper containing in writing a right entitling the holder to claim something, usually money, but sometimes goods. It’s also known as a bill of exchange drawn on a specified banker and not expressed to be payable on demand including an electronic image of a truncated cheque and a cheque in electronic form.
Important Terms:
• Author of the cheque: Drawer
• The person in whose favour the cheque is drawn: Payee
• Bank from where funds to be transferred: Drawee bank
Dishonour of cheque:
Cheque bounce is a slang used when a cheque is returned from the bank due to any reason like non-tally of signatures, stale cheque and insufficient funds in the account (an offence). The drawee bank instantly issues and sends a ‘Cheque Return Memo’ to the banker of the payee on dishonour of cheque mentioning the reason of the same. Lastly, the payee’s banker will return the bounced cheque and the cheque bounce memo (a receipt of information) to the payee.
Passing bad cheques can be illegal, and the crime can range from a misdemeanour to a felony. Sec 138-143 of Negotiable Instruments Act deals with dishonouring of cheques which are considered as an offence.
Essentials to attract sec 138 of the act:
• Dishonour of cheque
• Payment in the discharge of debt/liability
• Presentation of the cheque within the validity period(6-months)
• Dishonour due to insufficient funds etc.
• Element of dishonesty
• Notice and demand from the drawer within 30 days of receipt of the information
• Non-payment by drawer within 15 days from the receipt of the notice
Sec 13(1) of the Negotiable Instrument Act
Sec 6 of the Negotiable Instruments (Amendment) Act, 2002 enlarging the definition of the cheque.
In Devendra Singh v. Varinder Singh M.P. high court considered the dishonouring of cheque under sec 138 where the signature of the drawer was different from the bank records.
When a cheque gets expired i.e., after 6 months from the date of issuance.
Sec 138 of Negotiable Instruments Act.
Legal remedies
Following are the important things to avail legal remedies provided for bounced cheque:
• The complaint should be filed in the court of Judicial Magistrate of First Class or Metropolitan Magistrate (MM). within:
• 30 days from the receipt of the reply to notice;
• 30 days after the expiry of 15 days from the date the notice was sent in case of no reply.
- If the payment by way of the cheque is made as gift or charity, it doesn’t attract sec 138 as payment is not for legally enforceable debt/liability.
- If after the receipt of the notice, the cheque is presented at the bank on the instance of the drawer of the cheque and results in dishonouring again it doesn’t extend the timeline of the drawer as provided in the notice.
- Dishonestly stopping the payment of the cheque issued by drawer comes within the ambit of sec 138.
- Dishonour of mutilated cheque doesn’t comes u/s 138.
- The drawer can be awarded with the punishment for imprisonment up to 2 years or with fine twice the amount of the cheque or with both.
A person faces great hardship if a cheque issued in his favour is dishonoured. So utter carefulness while discharging one’s legally enforceable debt/liability should be taken.
Uplanche v. R.K. Vimala, 1998 (A.P. High Court)
Electronics Trade Ltd. v. Indian Technologist Pvt. Ltd., A.I.R. 1996 S.C. 2339
Deepak Aggarwal v. Ram Swaroop Jain
Ricky Chopra International Counsels
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