1.

INTRODUCTION
Remember how Amitabh Bachchan signed cheques for winning participants in
Kaun Banega Crorepati and left us fancying the idea of drawing handsome cheques
of our own someday?

Sure is a great thought, but simply acquiring a cheque does not mean acquisition of
money. All cheques are instruments of a systematic procedure. However, these
instruments turn out to be defective sometimes, thus causing lapses in money
transactions. Such a lapse is commonly referred to as a case of Cheque bounce.

But let’s first understand what is cheque?

1.1 Definition:

As per negotiable instrument act 1881, A “cheque” is a bill of exchange drawn on

a specified banker and not expressed to be payable otherwise than on demand.

1.2 Meaning:

Cheque is a negotiable instrument used to make payment in day to day business

transaction minimizing the risk and possibility of loss. It is used by individuals,
businesses, corporate and others to transact for making and receiving payment.

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There are three parties in Cheque Transaction – Drawer, Drawee and Payee.

 Drawer (Maker of Cheque) – The person who issue the cheque or hold the
account with bank.
 Drawee – The Person who is directed to make the payment against cheque. In
case of cheque, it is bank.
 Payee – A person whose name is mentioned in the cheque or to whom the
drawee makes payment. If drawer has drawn the cheque in favor of self, then
drawer is payee.

Payment by Cheque is safest way to conduct business transactions as it helps to

maintain record in account statement to whom the payment is made by whom
payment is received. So it becomes easier to track the transactions through bank
account statement.

1.3 Different Types of Cheque

There may be different types of Cheques depending on how the drawer has issued
the Cheque.

Here we will discuss about different types of cheque with their features in detail:

a) Open / Bearer Cheque

 This type of Cheques are risky in nature for drawer. When the word “Bearer”
on the cheque is not crossed or cancelled, the cheque is called a bearer
cheque.

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  Open / Bearer Cheques are payable to person specified in the instrument or
any person who possess it and present for payment over the counter.
 In case of cheque is lost, person who find it can collect payment from
the bank.

b) Order Cheque

 When the word “Bearer” written on cheque is crossed or cancelled it becomes

an order cheque.
 An order Cheque is payable to a specified person named in the cheque or any
other to whom it is endorsed.

c) Crossed Cheque or Account Payee Cheque

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  The person who issue or write the cheque specify its as account payee by
simply making two parallel lines on top left or middle or right hand corner of
the cheque.
 This type of cheque cannot be encashed over the counter. Considered as
safest type of cheque, it can only be credited to payee’s account whose name
is mentioned in the Cheque.

d) Anti-Dated Cheque
 Cheque bearing the date earlier than the date of presentation for payment is
known as anti-dated cheque.
 Note: All Types of Cheque are valid for three months from the date of issue
(or written on cheque).

e) Post Dated Cheque

 Cheque bearing the date which is yet to come in future is called Post Dated
Cheque. Cheque is honored only on or after the date (upto three months)
written on cheque.

f) Stale Cheque

 A Cheque turns stale after three months of the date written on cheque. A Stale
Cheque cannot be honored by the bank.

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 2. DISHONOR OF CHEQUE
Business transactions of people is increasing day by day and the stability of
maintaining bank balance has been fluctuating depending upon the financial needs of
the people. If a person issues a cheque to another, he/she may not be aware of the
current bank balance and thus the cheque may be dishonored. In such situations, the
drawer of the cheque is given a 30 days’ time for repaying the amount back to the
payee. But after that period, if the drawer is not willing to pay the amount, the payee
has an option to file a suit against the drawer for payment of the amount of the cheque
as well as an amount of interest as compensation for the default caused by the drawer.

In other words, a Cheque bounce refers to a case of payment decline by a bank, on

account of certain unmet parameters. The dishonor of a cheque or a cheque bounce
is a criminal offence punishable by imprisonment up to two years or with monetary
penalty or with both.

Cheques are issued to maintain a more secured proof of payment. Even in today's
digital and technological age, cheques remain a reliable method of payment for many
people. However, sometimes people encounter problems with a cheque in their favor.

2.1 Few Reasons Why Cheque Is Dishonored

If cheque has been bounced, then one of the following could possibly be a reason.
Also remember these reasons while writing a cheque next time to avoid dishonour of
your cheque by bank in future.

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 a) Insufficient Funds
 While writing a cheque, one has to make sure that he have sufficient funds in
bank account.

b) Irregular Signature
 Bank will not honour a cheque if the signature of the drawer on the cheque
don’t match the specimen signature available with the bank.

c) Alterations
 Alterations on cheques are not allowed. Even if we sign the alteration to verify
it, the cheque will not be considered as valid and will not be honoured by the
bank.

d) Post-dated Cheque
 Post-dated cheques are to be presented to the banks on a future date.
 A cheque will be dishonored if it is presented to the bank before the date
mentioned on it.

e) Stale Cheque
 If a cheque is presented to the bank for payment after three months from the
date mentioned on the cheque it is called stale cheque.
 After expiry of that period, the cheque will be dishounoured and no payment
will be made by banks against that cheque.

f) When Payment Is Stopped

 If the drawer asks the bank to stop payment and not to pay for a cheque already
issued, in that case, the cheque will not be honoured by the bank.

g) Frozen Account

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  If government or court has ordered that a person’s account has to be frozen, in
such case, the bank will dishonour all the cheques bearing that account
number.

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 3. THE LAW
Section 138 Negotiable Instruments Act as it is at present after coming into force of
The Negotiable Instruments (Amendment And Miscellaneous Provisions) Act, 2002:

3.1 Statement

Dishonour of cheque for insufficiency, etc., of funds in the account:

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 honour 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 provision
of this Act, be punished with imprisonment for a term which may extend to two years,
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 six 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 thirty 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.

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  Explanation - For the purposes of this section, “debt or other liability” means a
legally enforceable debt or other liability.

3.2 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.

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 4. CASE STUDY
Let’s view one anonymous case given below:

Case:

 Header - Asked to pay compensation to another private company within

three months

A Delhi court has imposed a fine of ₹25 lakh on a private firm and one of its partners
and asked them to pay it to another private company in a cheque bounce case.

The complainant company used to supply man-made yarns to the accused on a

regular basis. It alleged that the accused had issued two cheques in its favour while
paying for the supply of the yarns. However, when it deposited the cheques to the
bank concerned, both payment instruments were dishonoured.

 ‘Ignored legal notice’

Thereafter, the complainant issued a legal notice to it seeking payment of the due
amount, but the accused allegedly took no note of it. The supplier company then filed
a complaint in a Metropolitan Magistrate (MM) court under the Negotiable Instruments
Act.

The MM court convicted the accused and asked them to pay the complainant 25 lakh
as compensation.

The accused later challenged the MM court judgement in the court of Additional
Sessions Judge Sanjeev Kumar. Dismissing their appeal, the Judge modified the MM
court judgement.

The appellant was awarded six-month simple imprisonment. However, its partner was
not awarded any jail term.

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“In the present case, no sentence has been imposed upon the appellants by the trial
court and, therefore, order of compensation which has been passed cannot be upheld
and, therefore, impugned order of sentence/compensation is modified to the effect

that order of paying compensation of ₹25,32,325 shall be treated as fine and said the
fine would be given jointly by appellants to respondent as compensation under Section
357 (1) of the Criminal Procedure Code, and in default of the payment of
compensation, the appellant [partner in the company] shall undergo simple
imprisonment for six months. Appellants are given three months’ time to pay
compensation to the respondent,” the Judge said.

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 5. FALSE CASE?
With around 20 lakh cases, the Indian Courts are overwhelmed with cheque
bounces cases filed under Section 138 of the Negotiable Instruments Act, 1881.
However, a large number of such cases are false cheque bounce cases to extort
money from someone, or out of personal grudges to malign someone’s image. With
large number of fraud cheque bounce case the question which has emerged over the
time is how to escape from cheque bounce case?

People who are accused in a fake cheque bounce case in India, unfortunately, end up
facing the legal implications of cheque bounce case and paying money as they lack
the relevant knowledge of the legal course to take if a false cheque bounce case is
filed against them.

Here’s what you can do to defend a cheque bounce case:

a) Keep a copy of relevant documents:

 Precaution is always better than cure! Keep a copy of all the relevant
documents that prove that a transaction has been made through a cheque
issued.
 The payment invoice, copy of cheque, bank account statement, bank draft
cheque etc. are some of the documents that can be keep as a proof of payment
in a fake cheque bounce case.

b) Contact your bank:

 When we receive information regarding bank dishonour of cheque from the
cheque bearer, contact bank immediately to get information whether the
cheque has even bounced in the first place or not.
 If the cheque has actually bounced, the bank will notify about the dishonouring
of cheque and the reason why it dishonoured.

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 c) Send a reply to legal notice:
 If we have received a cheque bounce legal notice regarding a cheque bounce
case, the first thing one should do is hire a lawyer for cheque bounce case to send
a prompt reply to the cheque bounce notice.
 A period of 30 days is given under the Negotiable Instruments Act to send a reply
to cheque bounce notice.
 The cheque bounce lawyer will draft reply to 138 notice the person accusing us
of cheque dishonour. when a person has sent a false cheque bounce case notice,
sending them a legal reply usually makes them withdraw their fraud case.

d) File a counter case:

 If the person files a false cheque bounce case against another person in the court,
one can file a reply to the case through a lawyer for cheque bounce case nearby.
He can also file a counter file of cheque against the person for filing a false cheque
bounce case against other.
 We can also file a civil case for cheque bounce to claim compensation for false
case the damages and expenses incurred for dealing with the bank fraud cases
and a criminal case for filing a false case, along with a case of defamation against
the person.

Lastly, it is possible to avoid the unnecessary legal hassle of a false cheque bounce
case by consulting an experienced lawyer for cheque bounce case in India who can
guide you about the correct action to take at the right stage before it’s too late.

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 6. CONCLUSION
Dishonour of the cheque is one of the major issues faced by the parties while
transferring money through negotiable instruments. It will make the drawer liable
even though he was unaware of the insufficiency of the fund in his account within
a prescribed limit of time. But the law itself provides a reasonable time for them to
repay back the amount to the payee.

The default made after such a period has to be considered as a criminal act as
it involves an unlawful intention of not paying back the money to the deserving
party. Thus, the law makes it clear that the parties while signing a cheque have to
be aware of the amount of money in their concerned banks.

Certain Implications of dishonouring of cheque:

 Bank Penalty

For most banks, the penalty charges for cheque outward return are close to Rs.
300, while charges for cheque inward return are about Rs. 100. The penalty
charges change from one bank to another and are different for different account
types. Premium accounts mostly have higher penalty charges. A bounced cheque
can dent the financial credit history of a drawee.

 Impact on CIBIL Score

A CIBIL score is critical for your business since it can invariably affect your
equation with the investors or the banks when you approach them for your loan in
the future. Even a single bounce can impact your CIBIL score.

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To conclude, Although the Negotiable Instrument Act provides for expeditious disposal
of trail, the cases in the lower courts move at a snail’s pace sometimes. A lot is desired
in this direction. May be High courts should monitor and issue directions to lower
courts for speedy disposal of cases to achieve the objective of the Act.

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