Cheque Bounce (Section 138)

Cheque Dishonoring (Cheque Bouncing)

Cheque dishonoring, commonly referred to as cheque bouncing, occurs when a bank refuses to honor a cheque drawn on an account, either in part or in full, upon presentation by the payee. This is governed primarily by the Negotiable Instruments Act, 1881, particularly Section 138.

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Legal Grounds for Dishonor:

A cheque may be dishonored under Indian law for reasons such as:

• Insufficient funds: The drawer’s account does not have enough balance to cover the cheque amount.
• Account closed: The bank account on which the cheque is drawn is closed.
• Signature mismatch: The signature on the cheque does not match the specimen signature on record with the bank.
• Post-dated cheque: The cheque is presented before the date mentioned.
• Stale cheque: The cheque is presented after 3 months from the date of issuance (considered invalid).
• Other discrepancies: Errors in amount (in words and figures), incorrect MICR code, or tampering of the cheque.

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Legal Consequences under Indian Law:

• Criminal liability: Section 138 of the Negotiable Instruments Act provides that if a cheque is dishonored due to insufficient funds or account closure, the drawer can face imprisonment for up to 2 years and/or a fine up to twice the cheque amount.
• Notice requirement: The payee must send a written demand notice to the drawer within 30 days of receiving the dishonor memo.
• Filing a complaint: If the drawer fails to pay within 15 days of receiving the notice, the payee can file a criminal complaint in court.
• Bank charges: The drawer’s bank may also levy dishonor fees for returning the cheque.

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Summary:

Under Indian law, cheque dishonoring is a serious offense. It occurs when a cheque cannot be honored due to insufficient funds, account closure, or other discrepancies. Section 138 of the Negotiable Instruments Act, 1881, provides both civil and criminal remedies for the payee, including recovery of the cheque amount, penalties, and potential imprisonment for the drawer.