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Cheque Bounce Notice- an Overview

A cheque bounce notice is served Cheques are a popular payment instrument for the settlement of existing debts and liabilities by individual and corporate entities alike, especially when huge amounts of transactions are involved. Since cheques have been a preferable means of payment and settlement among parties for a long time now, transactions through cheques have garnered a huge share in the total volume of transactions in India.
Such an enormous share of transactions often causes most cheques to be bounced or dishonored due to a number of reasons, which include insufficient funds in the debtor’s account, incorrect details in the cheque, overwriting on the cheque, outdated cheque, mismatched signature of the drawer of the cheque, etc.
Cheque Bounce Notice- An Overview
Dishonoring of cheques is neither desired by the debtor, nor the creditor as it often lands the two parties in disputes that are difficult to settle. Moreover, the grievances become extremely gruesome for the creditors, for whom bounced cheques mean a declined chance of recovery of debt and liabilities. Therefore, as a legal relief to aggrieved creditors, section 138 of the Negotiable Instruments Act, 1881 provides for serving a legal cheque bounce notice to the debtors in a bid to secure payments from them.

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Legality of cheque dishonor in India

The Negotiable Instruments Act, 1881 is the umbrella law that deals with cheque dishonor in India. Under section 138 of the act, a cheque dishonor is construed as a punishable offense. If the drawer of the cheque or the debtor is convicted of the offense, he shall be liable to pay twice the amount for which the cheque was originally drawn, or shall face imprisonment up to two years or both.
However, the punishments mentioned above shall only be imposed if the offense has been proved to be committed by the debtor for any amount of debt he owes to the creditor. Henceforth, there is a prescribed legal procedure of serving a cheque bounce notice that is required to be strictly followed by the creditor.

When does the need to serve a cheque bounce notice arise?

If a cheque has been dishonored at the end of the debtor, he shall be offered a second chance to pay the creditor by submitting the same dishonored cheque again, within 3 months from the date on which the cheque is drawn.
However, if the resubmitted cheque gets dishonored as well, and the debtor fails to pay the dues of the creditor again, then the creditor can ultimately resort to the legal option of serving a cheque bounce notice to the debtor.
Exceptions under Section 138
Legal notices can only be served for dishonored or bounced cheques in which the debtor pays any amount that is due to the creditor. Notices cannot be served for dishonored cheques where the drawer is paying grants or is lending money to the drawee.

What are the protections offered by a Cheque Bounce Notice?

A cheque bounce notice offers an effective legal remedy to the creditor against the debtor who owes a certain amount of money to him, and is unable to pay the same through the means of a cheque. The remedy helps the creditor either recover the entire amount due with the debtor, or punish him for defaulting on it through legally imposed fines and penalties.

What are the contents of a Cheque Bounce Notice?

The legal cheque bounce notice must be addressed to the debtor or the drawer of the bounced cheque, seeking from him the payment of the amount that he owes to the creditor. The debtor, after being served such a notice, must pay the entire due amount within 15 days of receipt of such a notice. If he is unable to do so, he shall be convicted of a legal offense under Section 138 of the Negotiable Instruments Act, 1881 and criminal proceedings shall begin against him after the expiry of 30 days from the date of the reception of the Cheque Bounce Notice.
The language of the cheque bounce notice shall be such that the creditor shall ask the debtor to pay the amount due within 15 days from the date of receipt of this notice. If the debtor defaults on such a payment, the creditor shall be entitled to file a legal suit against the debtor in the court of the Jurisdictional Magistrate, after the expiry of 30 days from the date of receipt of the legal notice.
In order to issue a valid cheque bounce notice, creditors must know the details that goes into it. A list of all such details have been mentioned below:
  1. Name and address of the drawer or the debtor.
  2.  Name and address of the payee.
  3. Bank on which the cheque was drawn. 
  4. Cheque number and date.
  5.  Date of cheque returning paid.
  6. Reason for the dishonor of cheque as mentioned in the “Cheque Return Memo”.

Consequences of not sending the legal cheque bounce notice

Although it is always recommended that the creditor serves the legal cheque bounce notice within thirty days of receiving the Cheque Return Memo, in order to remain eligible for filing a legal suit against the debtor if he defaults on the payment, after the expiry of 30 days from the date on which the legal notice is served.
However, if the creditor issues the notice after 30 days of receiving the Cheque Return Memo, he can still file a legal suit against the debtor provided he also files a condonation request with the competent court of law along with the legal suit.
Therefore, if the cheque bounce notice has not been issued within thirty days of receiving the Cheque Return Memo, the competent court of law shall direct the creditor to issue the cheque bounce notice or shall initiate legal hearings against the debtor on the appeal of the creditor.
Ans. The charges that may be levied in the event of a cheque getting dishonored depends on the individual bank policies and is different for different banks in India. The charges usually range from Rs. 50 to Rs. 750.
Ans. A Cheque Return Memo is an instrument or document which is sent by the drawee bank to the collecting bank in case of a cheque getting bounced. It is often accompanied by the dishonored cheque and contains the date of return along with the reason for the cheque getting bounced. A cheque return memo is a mandatory supporting document that is accompanied with a Cheque Bounce Notice issued to the debtor.
Ans. The documents that are required to be furnished for the purpose of filing a legal suit against the debtor include the following:
  1. A copy of the cheque bounce notice served to the debtor
  2. The courier or post receipt as a proof of receipt of the cheque bounce notice
  3. Original copy of the bounced cheque 
  4. A valid and legally acceptable proof of the amount due to the creditor as acknowledged by the debtor
  5. The original Cheque Return Memo issued by the drawee bank to the collecting bank.
Ans. Yes, a dishonored or bounced cheque can be resubmitted again within a prescribed time limit. There is no limit to the number of resubmissions. However, after the first resubmitted cheque gets bounced, the creditors become entitled to serve a legal cheque bounce notice to the debtor.
Ans. Yes, a bouncing of a cheque amounts to criminal offense under section 420 or section 406 of the Indian Penal Code and a civil offense under section 138 of the Negotiable Instruments Act, 1881.

Conclusion

The legal protection provided to the creditor or drawee of a dishonored or bounced cheque under Section 138 of the Negotiable Instruments Act and sections 420 and 406 of the Indian Penal Code, has made cheque payments one of the most secure modes of payment and transactions in India.
In the event of a cheque bounce, the creditor can not only serve a legal cheque bounce notice to the debtor, but also challenge him in a court of law for repeated defaults. Under all circumstances, the creditor is legally entitled to recover the entire amount due with the debtor, or seek his punishment in case of non-payment of the due amount.

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Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.
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