Cheque Bounce Case

It is estimated that more than 2 million cheque bounce cases are pending before the various court in India. Cheques are used as the security for rapeument of the debts by many banks, individual persons and money lenders.

What is a cheque?

According to section 6 of the Negotiable Instrument Act, a "cheque" is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

In other words, it is an order to a bank to pay a stated sum from the drawer's account, written on a specially printed form.

The maker of a cheque is called the "drawer "; the person thereby directed to pay is called the " drawee". The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the "payee". ( Section 7).

For example: If X issues a cheque to Y having account with Z Bank. X becomes the drawer. Y becomes the Payee. Z Becomes the drawee of the cheque.

Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 inserted in the Negotiable Instruments Act, 1881, a new Chapter XVII,comprising sections 138 to 142 with effect from 1st April, 1989. It incorporated penalties for the dishouner of cheques due to insufficient funds. These provisions were incorporated with the view to encourage the culture of use of cheques to enhance the credibility of the instrument.

Section 143 of the Act introduced by 2002 Amendment provides that all offences under this Chapter shall be tried by a Judicial Magistrate of the first class or by a Metropolitan Magistrate and the provisions of Sections 262 to 265.

Jurisdiction of the Court:

The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment, is situated.(Sec.142)

Section 138 of the N.I.Act states as follows:

Section 138: Dishonor of cheque for insufficiency, etc., of funds in the accounts 

Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both:

PROVIDED that nothing contained in this section shall apply unless-

(a) the cheque has been presented to the bank within a period of three months from the date on which it is drawn or within the period of its validity, whichever is earlier.

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

What should you do if someone issues a cheque and got bounced?

Issue a notice to the drawer of the cheque asking him to make the payment of the cheque within 15 days of the receipt of the notice.

If the money is not paid, file a complaint before the magistrate court with the required documents.

Duration: 

6 months. Section 143(3) states: Every trial under this section shall be conducted as expeditiously as possible and an endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.

Ingredients of Offence Under Section 138

1. The cheque should have been issued for the discharge , in whole or part, of any debt or other liability

2. The cheque should have been presented within a period of six months or within its validity period whichever is earlier.

3. The payee or holder in due course should have issued a notice in writing to the drawer within 30 days of the receipt of information by him from the Bank regarding the return of the cheque as unpaid.

4. After receipt of the said notice from the holder in due course, the drawer should have failed to pay the cheque within 15 days of receipt of the said notice.

Grounds for Dishonour of Cheque:

1.     Funds Insufficient

2.     Account Closed:

3.     Stop Payment

4.     Refer to drawer

5.     Not a clearing member

6.     other endorsements