In the financial world, the term “cheque bounce” is alarming for both payers and payees. This article explores the complexity of cheque bounce cases, Detail insights on legalities, consequences, and the crucial role of a well-crafted legal notice.
Table of Contents
Cheque Bounce: Understanding the Legal Framework
Understanding Section 138 of NI Act
As per the Indian law, when a cheque is returned due to insufficient funds, it falls under the purview of Section 138 of the Negotiable Instruments Act, 1881 (NI Act). This section holds provisions for criminal actions against the drawer.
The 30-Day Countdown: Legal Notice Requirement
Section 138(b) dictates that the payee must issue a written notice to the drawer within 30 days of receiving information about the bounced cheque. This notice acts as a precursor to legal proceedings.
Drawer’s Duty: The 15-Day Repayment Window
According to Section 138(c), the drawer, upon receiving the legal notice, has 15 days to repay the debt. Failure to do so empowers the payee to initiate legal action.
How to draft a Cheque Bounce Notice
Essential Elements of the Notice
When drafting a legal notice for cheque bounce, certain elements demand precision:
- Drawer and Payee Details: Clearly mention names and addresses.
- Cheque Information: Include number, date, and amount.
- Return Details: Specify the date of return and the reason.
- Debt Clarification: Outline the purpose of the financial transaction.
- Section 138 Reference: Explicitly refer to Section 138 of the NI Act.
Cheque Bounce Notice Format: Understanding Details & Complexity.
While the law doesn’t prescribe a specific format, adhere to these guidelines for an effective notice:
- Keep original cheque and return memo secure. (Return memo received from Bank is an essential and mandatory document, without this document we cannot proceed for further legal process)
- Choose a delivery method: Registered Post, Email through an Advocate, or WhatsApp. : (It is advisable to utilize Registered Post for sending the notice, ensuring proper acknowledgment as evidence that the notice has reached the intended recipient.)
- Ensure the complainant aligns with the payee as per Section 138 requirements.
- For companies, address the notice to the company and relevant personnel.
- Specify the exact amount and purpose of the cheque transaction.
- Adhere to the legal notice period to avoid complications.
Format of Cheque bounce notice
You need to include:
- Your name and address
- The date when you send the notice
- The name and address of the person who wrote the bounced cheque
- Information about the bounced cheque, like its number, when it was written, the amount, and why it bounced
- Within 15 days of getting the notice, ask them to pay you
- Warn them about legal action if they don’t pay in time.
Remember, the format of the notice might change based on the situation and legal rules.
Consequences of Dishonoured Cheque
Financial Penalties
Dishonouring a cheque incurs financial penalties by Banks, with the drawer potentially facing Cheque bounce charges. Cheque bounce charges may vary from Bank to Bank.
Criminal Prosecution
Section 138 violations lead to criminal charges, resulting in imprisonment for up to two years or a fine double the cheque amount, or both.
Civil Suit
Payees can file civil suits to recover cheque amounts, including damages for inconvenience caused.
Reputation Damage
A bounced cheque can badly lose the reputation of the Drawer, impacting future financial transactions and relationships.
The Cheque Bounce Case Procedure
Navigating a cheque bounce case involves a systematic process:
- Demand Notice: Issue a demand notice to the cheque issuer.
- Details Inclusion: Include cheque details and dishonoured memo in the notice.
- 15-Day Payment Window: The issuer has 15 days to pay after receiving the notice.
- Court Complaint: File a complaint in court if payment is not made.
- Document Submission: Submit necessary documents to the court.
- Judicial Review: The court reviews and verifies submitted documents.
- Summoning the Accused: The accused is summoned to appear in court.
- Warrant Issuance: Non-appearance may lead to the issuance of a bailable warrant.
Cheque Bounce Notice Issuance: Best Practices
Timely Issuance Conditions
Before issuing a cheque bounce notice:
- Ensure the cheque is presented within its validity period.
- The bank must return the cheque due to insufficient funds or other reasons.
- Send the notice within 30 days of receiving a cheque bounce intimation.
Seeking Legal Assistance for Cheque Bounce Cases
Engaging a cheque bounce lawyer is crucial for:
- Legally Sound Notices: Lawyers ensure the notice complies with legal requirements.
- Information Gathering: Lawyers gather crucial information for effective notice drafting.
- Proper Legal Representation: Lawyers guide clients through legal complexities, ensuring justice.
- Efficient Documentation Handling: Legal teams adeptly handle paperwork associated with cheque bounce cases.
Terminology involved in Cheque Transactions
Understanding the key parties helps navigate the legal landscape:
- Drawer: The cheque writer or author.
- Payee: The party to whom the cheque is payable.
- Drawee: The bank tasked with cheque payment.
- Payee’s Bank: The bank where the payee holds an account.
Remedies Against Cheque Bounce
In case of a bounced cheque:
- Resubmission of Cheque: Resolve issues like overwriting, incorrect signatures, or damage by requesting another cheque.
- Legal Action: If the drawer refuses, the payee can file a civil lawsuit for the entire amount.
Cheque Bounce New Law in India
There is an amendment in Negotiable Instruments Act, 1881, which is known as “Negotiable Instruments (Amendment) Act, 2018”
This law has some changes related to the Cheque Bounce cases.
- Faster Resolution : Amended law introduced a provision that cheque bounce cases to be resolved within 6 months from the date of filing the case.
- Jurisdictional Flexibility : the amended law empowers complainants to file cases not just in the locality where the cheque bounced but also in the area where it was issued or where the complainant’s bank branch is situated.
- Settlement Options (Compounding the offences) : This law allows for the compounding of offences related to cheque bounce. It means that Parties involved can reach a settlement, closing the case without enduring a lengthy trial. However, this option is available exclusively for first-time offenders.
- Punishment to the serial offenders : The amended law is strict against repeat offenders. Those convicted of cheque bounce two or more times may face imprisonment for up to two years and a fine double the amount of the bounced cheque.
RBI Link related to the Dishonour of Cheque : https://www.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=136
FAQs on Cheque Bounce: Understanding the Legal Framework
What falls under Section 138 of the NI Act?
In Indian law, when a cheque bounces due to insufficient funds, it falls under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), which deals with criminal actions against the drawer.
What is the significance of the 30-day countdown in legal notice issuance?
Section 138(b) requires the payee to issue a written notice to the drawer within 30 days of knowing about the bounced cheque, serving as a precursor to legal proceedings.
What is the drawer’s duty according to Section 138(c)?
The drawer, upon receiving the legal notice, has 15 days to repay the debt. Failure empowers the payee to initiate legal action.
How do I draft an effective Cheque Bounce Notice?
When drafting, ensure precision in:
Drawer and Payee Details: Clearly mention names and addresses.
Cheque Information: Include number, date, amount.
Return Details: Specify return date and reason.
Debt Clarification: Outline the purpose of the financial transaction.
Section 138 Reference: Explicitly refer to Section 138 of the NI Act.
What elements should be included in the Cheque Bounce Notice Format?
Your name and address
Date of notice
Name and address of the issuer of the cheque
Details of the bounced cheque, including cheque number, date of issue, amount, and reason for bounce
Within 15 days of procuring the notice, ask them to pay you
Warn them about legal action if they don’t pay in time.
What are the consequences of a dishonoured cheque?
Financial Penalties: Banks may charge penalties.
Criminal Prosecution: Section 138 violations lead to imprisonment or fines.
Civil Suit: Payees can file civil suits for cheque amounts and damages.
Reputation Damage: A bounced cheque can harm the drawer’s reputation.
What is the procedure for a Cheque Bounce Case?
The procedure involves:
Issuing a Demand Notice.
Including cheque details and dishonoured memo in the notice.
Providing a 15-day payment window for the issuer.
Filing a court complaint if payment is not made.
Submitting necessary documents to the court.
The court reviews and verifies submitted documents.
Summoning the accused and potential issuance of a warrant.
Under what conditions should a Cheque Bounce Notice be issued?
Before issuing a notice, ensure:
The cheque is presented within its validity period.
The bank returns the cheque due to insufficient funds or other reasons.
The notice is sent within 30 days of receiving a cheque bounce intimation.
Why should I seek legal assistance for Cheque Bounce Cases?
Engaging a cheque bounce lawyer is crucial for:
Ensuring legally sound notices.
Gathering crucial information for effective notice drafting.
Providing proper legal representation.
Efficient handling of paperwork associated with cheque bounce cases.
What are the key parties involved in Cheque Transactions?
Understanding key parties helps navigate the legal landscape:
Drawer: The cheque writer or author.
Payee: The party to whom the cheque is payable.
Drawee: The bank tasked with cheque payment.
Payee’s Bank: The bank where the payee holds an account.
What remedies are available against Cheque Bounce?
Resubmission of Cheque: Resolve issues like overwriting or damage by requesting another cheque.
Legal Action: If the drawer refuses, the payee can file a civil lawsuit for the entire amount.
What is the new law related to Cheque Bounce in India?
The Negotiable Instruments (Amendment) Act, 2018 introduced changes, including faster resolution, jurisdictional flexibility, settlement options, and strict punishment for repeat offenders. It aims for a resolution within 6 months from the date of filing the case.
Is there an RBI link related to the Dishonour of Cheque?
Yes, the RBI provides information related to the Dishonour of Cheque. You can find more details on their
https://www.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=136
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