Bounced cheques are one of the most common offences plaguing the financial world and can cause serious humiliation for an individual. Here’s a step-by-step guide to the legal recourse that is available to a person who has been handed over a bounced cheque.
A cheque bounce is when an unpaid cheque is returned back by the bank, also known as dishonour of cheque. Cheque bounce can eventuate because of a lot of reasons, for instance, due to insufficiency of funds in the account of the ‘drawer’ and many other reasons.
The bank always issues a cheque return memo with the necessary reasons for non- payment as soon as the cheque gets bounced (it may or may not be the first instance of bouncing of the cheque).
A cheque is an exchange bill drawn upon a designated banker which is only payable on demand by the applicant.
In strict legal sense, the individual/ organisation issuing the cheque is called a 'drawer' and the individual/ organisation in whose favour the cheque has been issued is called the 'drawee'.
The essential characteristics of a cheque are mentioned as follows:
A cheque bounce is dishonour of payment by the drawer towards the drawee when it is submitted for payment to a bank but does not get paid due to some or the other reason.
The following are the different reasons for a cheque to get bounced:
In India. a cheque bounce is a criminal offence stipulated under Section- 138 of the Negotiable Instruments Act, 1881. However, in case of a cheque bounce, the aggrieved party can file a criminal as well as a civil suit against the accused.
In a cheque bounce case, under law, the drawer still has time to resubmit the same cheque within 3 months from the date of its issue if the drawer feels that it would not get dishonoured in the future.
Sending a demand notice (first step towards litigation)
The first step after the cheque has been returned by the bank is not to register a legal complaint in the Police Station against the drawer (with/ without the lawyer) but is to send a formal demand legal notice/ letter to the drawer within the stipulated time of 30 days from the date the cheque was presented and returned back by the bank to the drawee. The legal notice must insist the amount (as mentioned in the cheque) from the drawer. The notice must also mention that if the amount is still not paid within the stipulated time period of 15 days, then appropriate legal action as prescribed under the Negotiable Instruments Act, 1881 shall be instituted against the drawer.
Since there is no established format for such a notice, it should simply be demanding and relevant. The notice must explicitly highlight the main objective of the notice that is to demand payment from the drawer while informing and warning the drawer of the legal consequences that might result due to non- payment of the pending amount. The drawee must preserve the delivery proof of the notice like the postal receipt/ online status of the notice.
The said demand notice can be sent by the drawee himself, however, it is advisable to seek help from an expert cheque bounce lawyer to draft such a notice to be sure about the legal language and to ensure the notice leaves a fearing impact on the drawer against his breach of trust.
The drawee must clearly provide instances of the default and breach of trust committed by the drawer.
The following are the key points to remember:
A complaint is only affected when the drawer has not replied to the demand notice within a period of 15 days from the delivery of the notice or has been delaying payment unnecessarily or has outrightly refused to pay the amount. A complaint is to be filed in the court which would have the jurisdiction over the dispute within the prescribed time limit of 30 days (from the date of receipt of the demand notice by the drawer).
It is pertinent to understand which court the drawee should approach in a cheque bounce case. The drawee can register the complaint in a court within whose local limits of jurisdiction any of the following incidents may have arisen:
The drawee must have all the important documents before registering the complaint, for instance,
Every litigation process requires payment of court fees. Similarly, while filing a cheque bounce complaint, the drawee (complainant) has to pay a standard amount of court fees which varies case to case and entirely depends on the cheque amount against which the complaint is being filed in the court.
The standard court fee structure varies for different cheque amounts which is mentioned below:
Cheque Amount Court Fee
Rs. 0 to 50,000/- Rs. 200/-
Rs. 50,000/- to 2,00,000/- Rs. 500/-
Above Rs. 2,00,000/- Rs. 1000/-
Once the complaint is filed by the drawee (complainant), the court issues summons to the drawer (accused person) who has failed to make payment and furnished an irregular cheque.
It is advisable to prepare the cheque bounce complaint with the help/ assistance of an expert cheque bounce lawyer. The complaint must forward all the important/ useful evidence like the original cheque that was returned by the bank, the cheque return memo, demand notice sent against non-payment/ cheque bounce, receipts of legal notice and any other relevant document that can be used as evidence to support one’s legal standing that the accused is liable to pay the un-paid amount with interest as deemed fit by the court for all the mental and physical trauma caused due to court procedure.
Once the entire trial is over and if the accused is found guilty, then he can be punished with a monetary penalty which can be double the cheque amount or be punished with imprisonment which may extend to 2 years or even both.
An MoA is relevant since it is the official/ legal document authorising the advocate to appear in the court for his client as per his instructions. An MoA is popularly known as Vakalatnama in India. The vakalatnama must be presented on the first date of hearing/ filing of the complaint with the signatures of the complainant who is the client of the advocate.
An aggrieved drawee has an option to separately file a civil suit when advised by his lawyer to recover the due amount from the drawer after a tedious legal battle to recover money. A civil suit can help the complainant recover the due amount as well as the costs that he has borne during the litigation. As a result, a summary suit under Order- 37 of the Code of Civil Procedure, 1908 can be utilized to recover the due amount
A summary suit is unique which is contrary to an ordinary suit. A summary suit or the summary procedure is provided under Order XXXVII of Code of Civil Procedure, 1908 where right to defend himself is not provided to the accused rather, the accused needs permission from the court to defend himself.
However, legal utilization of summary suits can only be utilized in recovery matters, be it cheques, promissory notes or bills of exchange (wherever there was written contract to make payment).
What are the key things to remember in a cheque bounce case?
A cheque bounce offence is undoubtedly one of the most common financial offences across the globe and India is no stranger to these even when a cheque bounce case can cause terrible repercussions to the drawer of the cheque.
Cheque bouncing disputes are way more common than any other financial offences in India that are directly affecting today’s financial ecosystem. Currently, as per the Supreme Court of India there are more than 40 lakh cheque bounce cases that are pending.
Besides this, a cheque bounce can result in multiple repercussions for the drawer as well as the drawee as described earlier, for instance, heavy penalty from bank, negative influence on the CIBIL score which would ultimately mean getting blacklisted to obtain any future loans, civil or criminal action against the drawer (accused) and many more. In addition to this, in incidents where no legal action has been taken by the drawee against the drawer against cheque bounce or non- payment of money or cheating and dishonesty within the stipulated time as per law, the same can result in lack of remedy for the drawee of the cheque since there is a set limitation period in filing a cheque bounce case. Therefore, it is critical for the drawee to tackle a cheque bounce case in order to avoid losing his hard earned money.
Considering the law and the numerous provisions stipulated under it and everything that has been mentioned throughout this law guide, a cheque bounce case in all probability can attract criminal charges against the drawer. Therefore, it is of paramount importance to hire an expert cheque bounce lawyer to draft a legal notice, to file a complaint and also to defend an accused by drafting an appropriate reply to the legal notice/ complaint. Hiring an expert lawyer can ensure that the person involved is on the correct path towards getting justice whether the person is the drawer of the cheque or is the drawee of the same.
The responsibility of lawyer is not just to accumulate the relevant information for his client in relation to the cheque bounce case but also manage all the paperwork that allows enough time to focus on his business and other considerations.
Additionally, an expert cheque bounce lawyer can guide his client towards the right path before initiating a lawsuit with significant advice on how to tackle cheque bounce cases owing to years of experience in administering similar cases in the past.
Above all, an expert cheque bounce lawyer is a past master on the laws related to cheque bouncing and can therefore, help both an aggrieved person as well as an accused to nullify crucial errors that may result in causing legal and/ or financial trauma, which would ultimately be ratified by future legal proceedings only.
Therefore, hiring an expert cheque bounce lawyer can ensure that the needs and interests of the accused/ complaint (whoever the client is) are protected as per the law.