In this blogpost, Apoorv Singh, Student, NALSAR, Hyderabad, writes about the various common instances of ‘cheque bouncing’; what are the remedies available to a person as a ‘payee’ and the procedure that has to be followed for filing a complaint in this situation.

Cheque is a type of bill of exchange and is covered under the Negotiable Instrument Act(hereinafter referred as the Act). In legal terminology, the person who issues the cheque is called the ‘drawer’; the person in whose favour the cheque is issued is called ‘payee’, and the bank that is used for this transaction is called the ‘drawee’.  Cases of ‘cheque bounce’ are something quite common these days. We see a lot of people facing the incidents of ‘cheque bounce’ in our daily lives. But do you really know the procedure to deal with the cases if you become a victim of the same? What are the legal remedies available to you once you are the payee and the cheque that was issued in your favor bounces? Also, if you are drawee and your cheque bounces what are the remedies available to you to stop criminal proceedings in the court of law? All these issues will be addressed in this article in detail, but firstly we should look at some instances when a cheque is usually called to be ‘bounced’.

1. ‘Account Closed’:  It will be covered under Section 138 of the Negotiable Instrument Act. This condition occurs when all the money from your account has been withdrawn, and there is no money left. If this situation continues for some time than the bank closes the account of that person and any cheque issued from that account will bounce. This was held by the Hon’ble Supreme Court of India in the case of Neps Micon Ltd. & Ors v.  Magma Leasing Ltd.[1]
2. ‘Stop Payment’ instructions: The cheque will be dishonored if the drawer will instruct the bank to stop the payment of the cheque from his account. This will again fall in Section 138 of the Act. This was held in the case of Mahendr Dadia v. State Of Maharashtra[2]
3. ‘Refer to drawer’: This is the statement or expression by the bank when the drawer does not have sufficient balance in the account and draws a cheque in favor of payee, and the bank is unable to make payment to the payee and hence shows this message. This is also covered under Section 138 of the Act. This was laid down in the case of Lily Hire Purchase Ltd. v. Darshan Lal.[3]
4. Effect of other endorsements: It has been repeatedly held by courts that manifest dishonest intention of the drawer resulting in dishonor of the cheque would lead to prosecution under Section 138 Negotiable Instruments Act, regardless of the actual ground of dishonor.

Procedure to file a complaint

If the cheque has been ‘bounced’ then the first step that a payee needs to take is to give notice to the drawer, within 30 days of knowing that the cheque was bounced. After receiving the notice, if the person does not rectify his mistake and makes good the loss suffered by payee within 15 days, then he can be prosecuted legally. If he pays the payee within those 15 days, then he would not be said to have committed any offence, and no action can be taken against him. one can file a suit for recovery of the cheque amount along with the cost & interest under order XXXVII of Code of Civil Procedure,1908,(which governs the suit in summary trial) and can also file a criminal complaint u/s 138 of Negotiable Instrument Act for punishing the signatory of the cheque for having committed an offence. This action can be taken only after giving prior notice to the other party and after the expiry of 15 days after the notice has been received by the drawer.

Which court to be approached?

As per the second ordinance related to Negitiable Instument Act passed by the president the complainant can approach the court under whose jurisdiction the bank, where the cheque was presented lies.

But before approaching the court of law one condition that needs to be kept in mind is that the bounced cheque would have been issued for the discharge of legal duty and must not have been given as a gift. Only those cheque which have legal obligation can be enforced in the court of law.

Punishment & penalty

On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue summons and hear the matter. If found guilty, the defaulter can be punished with a monetary penalty which may be twice the amount of the cheque or imprisonment for a term which may be extended to two years or both. The bank also has the right to stop the cheque book facility and close the account for repeat offences of bounced cheques.
If the drawer makes payment of the cheque amount within 15 days from the date of receipt of the notice, then drawer isn’t said to have committed any offence. Otherwise, the payee may proceed to file a complaint in the court of the Jurisdictional Magistrate within one month from the date of expiry of 15 days prescribed in the notice.

[1] 1999 ISJ (BANKING) 0433; 1999 (1) APEX C.J. 0624; 1999 AIR (SCW) 1637

[2]  (1999) BANKING CASES (BC) 133 (17/03/1998

[3] (1997) 89 COMPANY CASES 663 (10/01/1997)