What legal action can be taken in case of cheque bounce?

General Provision

The dishonor of cheque is governed by Sec 138 of Negotiable Instruments Act, 1881. The dishonor happens due to insufficiency of funds. However, closure of a bank account before the date of drawing the cheque shall also be covered under this section. As stated in the aforesaid section, the amount subject to which the cheque has been drawn shall be a debt or liability of the drawer. It is presumed in Section 139 that the cheque has been drawn in favor of the holder for the payment of any debt, whole or in part. A complaint of the same can be filed mainly with the Magistrate under whose jurisdiction the drawee’s bank is established.

Punishment

Presently the drawer of such cheque as referred to in Section 138 shall be liable to-

• Imprisonment which may extend to 2 years. Or;
• A fine amounting to twice the amount of cheque. Or;
• Both

The offence under this section is of criminal nature. It is a bailable and non-cognizable offence.

Before filing a complaint

Following points should be considered before the drawee can file a complaint under Section 138-

• The cheque should have been presented in the bank within the period of its validity.

• The payee shall demand for payment of the amount from the drawer within 30 days of receiving notice of dishonor from the bank. The demand must be made by a written notice to the drawer by way of registered post.

• Further, if the drawer pays the amount within 15 days of receiving the notice, the complaint is not to be filed.

• If the above mentioned 15 days have also expired, a complaint can be filed within 30 days. This means that immediately after the expiry of 15 days from receiving the notice by the drawer, cause of action arises.

Remedies for the drawer

To prevent arrest in case the dishonor was not intended by the drawer then he/she can pay the amount within 15 days of receiving notice of dishonor. The following points should also be noted down-

• If you have made any arrangement with your bank regarding the maximum amount that can be withdrawn by way of cheque, never draw any cheque exceeding that amount, since dishonor on this ground shall also be covered under Section 138 of Negotiable Instrument Act.

• If you are a joint holder of an account against which a cheque has been drawn, please note that in case of dishonor only the person whose signature is present on the cheque shall be liable.

• In case, the payment has been stopped by the drawer before the check is presented by the payee for any justifiable reason, the drawer shall have to prove that the account had sufficient funds at the time of drawing the cheque.

• Absence of intention cannot be taken as a defense by the drawer in case of bouncing of cheque.

• If you are in any key position of a company please be extra cautious with cheques. Section 141 of Negotiable Instrument Act places vicarious liability on everyone who is in charge of affairs in the company. This means that a person can be arrested for the fault of others. Therefore, always take due diligence in a company since it stands as a good defense.

Recent developments

The judiciary has been actively debating on the question of jurisdiction under which a complaint is to be filed.

• According to earlier decisions of Supreme Court, the status was as follows. A, whose bank is in Lucknow drew a cheque for paying the debt of B, whose bank is situated in Delhi. When the cheque bounces, B can file a complaint in Delhi itself since his bank is situated in Delhi.

• On 1st August 2014, in Dashrath Rupsingh Rathod vs. State of Maharashtra, the Supreme Court held that a complaint can be filed at the place where drawer’s bank is situated.

• The order was reversed by the Central Government by modifying Section 142 in this regard through an ordinance in 2015. Later it was passed as an act. Therefore, presently a complaint can be filed even at the place where drawee’s bank is situated.

Author: This blog is written by  Mr. Amritanshu Tripathi, student of Shri Ramswaroop Memorial University, a passionate blogger & intern at  Aapka Consultant.

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