Cheque Bounce Notice | Charges & Legal Consequences

A cheque still holds an important place in the systems of both business and personal transactions in India. However, when a cheque is dishonoured – also referred to as cheque bounce, this becomes a nightmare for the payee, time consuming, frustrating and even financially draining. To overcome these hitches Indian law provides a systematic approach to handle such disputes which starts with a cheque bounce notice and if the issue is not resolved it can proceed to the court.

In this article we will explore cheque bounce notices in India, the procedure to follow and more of the legal framework governing such legal procedure. It also offers information on current rules changes, preventive measures.

What is a Cheque Bounce?

Cheque bounce means the banker declines to proceed with the payment when the cheque is presented to him for payment. This can happen for several reasons, including:

Insufficient Funds: There is a problem of insufficient equity to meet the amount of the cheque refereed to the account holder.

Signature Mismatch: The signature on the cheque does not tally with the specimen signature that the bank has.

Stop Payment Instructions: The bank is told to stop the payment as it is placed in the drawer.

Post-Dated Cheques: If produced before the date of the cheque mentioned in it.

Technical Errors: Actual prescribing, a cheque showing signs of damage, or a cheque carrying imperfect information.

Regardless of the reason, a cheque bounce can have serious legal implications under Section 138 of the Negotiable Instruments Act, 1881. This section holds the drawer accountable for dishonoring the cheque and prescribes penalties to deter such defaults.

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Cheque Bounce Notice Process in India

Notice of cheque bounce is an important pre-suit stage which gives the drawer an opportunity to make payment before an action is brought. Below are the detailed steps:

1. Cheque Dishonored by Bank: Whenever a cheque is returned by the bank unpaid and if the grounds are other than accounts payment, bank issues a Cheque Return Memo to the payee. It becomes necessary when in the process of instituting the legal process in any way.

2. Drafting a Legal Notice: The next procedure is writing a legal notice. This notice must be sent by the payee to the drawer at the latest within thirty days from the receipt of the cheque return memo. The notice should include:

• Number of the dishonored cheque; date of the cheque; and the amount of the cheque.
• Reason for dishonor as specified in cheque return memo.
• A demand for payment of the cheque amount 15 days after the receipt of the notice.

3. Serving the Notice: Legal notice should be served through some reliable means such as the registered post with acknowledgement or email. The proof of delivery is important in future legal cases.

4. Response Period: The drawer is also given a 15 day period from the date of the notice to make the payment. If the payment is effected within this duration, no other legal process could be taken.

5. Escalating to Legal Action: If the drawer does not make payment within the 15 days then a legal complaint can be lodged under section 138 before the jurisdictional magistrate court. This complaint must be made within thirty days after the 15-day notice period given to make the proper complaint is over.

Legal Process for Cheque Bounce

Once the complaint is filed, the legal process unfolds as follows:

1. Filing the Case: The payee files a written complaint in the magistrate court, supported by the following documents:

• Original dishonored cheque.
• Memo for cheque return received from the bank.
• A Xerox copy of the legal notice sent to the draw.
• Evidence as to the delivery of the legal notice in the matter.

2. Issuance of Summons: The case is reviewed by the court and if the petitioner meets all the requirements the court will then order the drawer to appear in the court and show cause why the demand was not met by him.

3. Submission of Evidence: This evidence and arguments are presented in court by the payee, the drawer and anybody that the two parties wish. The payee must prove that:

• The cheque was written by the drawer.

• It was dishonored for good and sufficient causes.

• In compliance with the legal procedures; the required notice period was also served.

4. Trial and Judgment: On the basis of the assessed evidence, the court brings a judgement. If the drawer is found guilty, the penalties may include:

• Imprisonment up to two years.

• A fine that is equivalent to up to double the amount of the cheque in question.

• Imprisonment and fine at the court’s discretion.

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New Rule of Cheque Bounce

The Indian government and judiciary have taken some steps to prevent the methods and cases of the cheque bounce and firstly to ease the load on the courts.

Digitalization of Proceedings: Most of the courts have adopted the online process for filing and processing of the cheque bounce cases to enhance quick delivery.

Electronic Summons: Summons are usually delivered electronically via email or via a text message.

Mandatory Compensation: Offenders are penalized and also made to remit a certain amount of money to the payee.

Stricter Timelines: The judiciary is disposed to ordering cheque bounce matters within set time limits.

These updates are meant to increase efficiency and aid in the compensation of any unfairness in the affected stakeholders.

Preventive Measures to Avoid Cheque Bounce

Cheque bounce is common among people especially those who don’t have tight financial discipline as follows are some ways one can avoid cheque bounce: Here are some preventive measures:

For Drawers (Issuers): 

• Make sure that you have enough balance in your account before you the cheque gets cashed.

• Check the recipient’s name and the cheques details before writing the message.

• Make sure that the signature you made corresponds to the bank records.

• Do not write cheques drawn for a future date or any cheques with open spaces for writing the amount.

For Payees (Recipients):

• Check the drawer’s account status with the bank as a reliability check before accepting cheques.

• Cheque return memo should be retained as evidence.

• Do not wait for long; issue a legal notice if a cheque gets dishonoured.

By adopting those practices, both parties will be able to avoid most of the misunderstandings between them, as well as keep proper financial reins.

Conclusion

The Cheque Bounce Notice process in India has social relevance in protecting the interest of the payee and in keeping checks and balances at par with accountability for financial transactions. Knowledge of the legal procedure, awareness of the recent change in rules, and compliance with the prevention steps are useful and helpful in this situation.

FAQs

Q1. What happens if a cheque bounces?

Ans: When a cheque bounces, the payee has the right to issue a legal notice to the drawer demanding payment within 15 days. If the drawer fails to pay, the payee can file a case under Section 138 of the Negotiable Instruments Act. If found guilty, the drawer may face imprisonment, fines, or both.

Q2. What is the new rule of cheque bounce?

Ans: The new rules emphasize faster resolution of cheque bounce cases. Courts now use digital tools for quicker processing, and summons are often issued electronically. Additionally, stricter penalties and enforcement measures have been introduced to deter offenders.

Q3. What is the legal process for a cheque bounce?

Ans: The legal process involves:

• Sending a legal notice to the drawer within 30 days of receiving the cheque return memo.

• Allowing the drawer 15 days to settle the payment.

• Filing a case in the magistrate court within 30 days of the expiry of the notice period.