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Law on Cheque Bouncing

When is a cheque “dishonoured”?

A cheque is a promise made in writing by one party to unconditionally pay another party a specified amount of money, which is owed to it. A cheque “bounces” or gets “dishonoured” when it is deposited or presented for payment but this promise is not honoured.

Examples:

  1. A issues a cheque to B for Rs. 1,000. When B deposits the cheque in the bank, the bank informs him that A does not have Rs. 1,000 in her account to pay B with. The cheque has been dishonoured.
  2. A issues a cheque to B for Rs. 1,000. Before B can deposit the cheque, A issues instructions to her bank to stop payment of the cheque. When B tries to encash the cheque, he cannot do so. The cheque has been dishonoured.

Frequently asked questions

I had enough money in my account when I wrote a cheque to my landlord to pay rent. But when the landlord deposited it 20 days later, there was not enough money in my account to pay rent and the cheque was dishonoured. Have I committed an illegal act?

Typically a cheque is valid for 3 months from the date on which it is issued. When you make a promise to your landlord to pay your rent through a cheque, it is understood your promise is good for 3 months. Even if your intention was to pay your rent when you wrote the cheque, but a few days later, your account balance went below the amount required to pay the rent cheque on the day your landlord presented the cheque for payment, you have still committed an illegal act. The relevant factor is not your intention to pay when you wrote the cheque, but whether your promise can be honoured on the day your landlord presents the cheque at his bank.

In this situation, your landlord can initiate legal proceedings against you and you can be punished with imprisonment of up to two years and/or fine of upto twice the amount of the cheque. The courts have held that it is possible to compound or settle your case at any stage. This can be done without cost at the first or second hearing of the case by making an application. This can be done at a later stage in the case as well - you will then have to pay costs up to 20% of the cheque amount to the legal service authorities.

X issued a cheque to me. I deposited it for payment, but it was dishonoured. What can I do?

You can file a criminal complaint under Section 138 of the Negotiable Instruments Act, if the following conditions are fulfilled:

  1. X owes you some money and issued a cheque to pay it;
  2. you presented the cheque for payment within the period of its validity (for cheques in India, this period is currently 3 months);
  3. the bank returned the cheque and informed you that the cheque amount cannot be paid to you;
  4. within 30 days of the bank informing you that the cheque has been dishonoured, you or your lawyer sent a written notice to X, demanding the cheque amount;
  5. X did not make payment of the cheque amount within 15 days of receiving the notice.

Where can I file a complaint for a dishonoured cheque?

  1. When you attempted to deposit the cheque into your bank account, the complaint can be filed before a magistrate with jurisdiction over the branch of your bank where you hold an account.
  2. When you attempted to encash the cheque without putting it in a bank account, the complaint can be filed before a magistrate with jurisdiction over the branch of the bank from where the cheque was issued.

Source: Nyaaya

Related Resources

The Negotiable Instruments Act, 1881



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