Cheque Bounce: Legal Provisions and Remedies
Negotiable Instrument Act 1881, plays very significant role in providing legal measures related to any payment made by negotiable instruments viz. Promissory Note, Bill of Exchange and cheque. Negotiable Instrument Act came in to force on 1st March 1882. With the advent of increased globalisation and commercial activities, use of cheque has increased and so did the cheque bounce disputes.
What is Cheque?
As per sec. 6 of 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 and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
Meaning of Cheque Bounce:
If drawer sends any cheque payee regarding payment of any financial transaction, it is written by the bank which is known as drawee to the payee stating lack sufficient funds in the account of the drawer than it is known as dishonour of cheque.
Procedure of Filing Complaint for Cheque Bounce (Sec 138):
To file any complaint related to cheque bounce following procedure is to be followed by Applicant/complainant/ plaintiff.
Send Legal Notice:
As per the provision of 138 of Negotiable instrument Act 1881, Applicant must send legal notice to the defaulter, whose cheque has been dishonoured. A legal notice has to be send to the defaulter within 15 days of dishonour of cheque by registered post AD.
Details to be Mentioned in Legal Notice:
Notice must contained all the facts of the case including:
Nature of the transaction
Amount of loan or any other legally enforceable debt for the satisfaction of which the cheque was issued
Date of Deposit in Bank
Date of Dishonour of cheque
It is advisable that such notice must be drafted by a learned and experienced lawyer to avoid any aftermath during lawsuit.
The drawer (Person who has to make payment for the debt) has to make payment for the debt owed to the payee within 15 days from the date of receipt of the notice.
Payment of debt within 15 days:
When the debt is paid off within 15 days of the notice the matter is done. Law provides second chance to the drawer of the cheque to pay the fully and properly pay the legally enforceable debt or loan to the payee.
Payment not made within 15 days:
The person who has been denied rightful debt payment for the reason of the insufficient funds in the account etc. can now file a legal complaint in the form of criminal as well as civil suit in the court of lowest jurisdiction.
For this purpose 30 days crucial time period is provided to the complainant to file the criminal case. 30 days are calculated from the expiry of the notice period of 15 days given to the drawer of the cheque to repay the debt.
Court Issues Process:
Upon registering the complaint case the matter gets listed in the court in due time. The magistrate hear the arguments of the complainant issues the required process.
Summons issued by court through police:
The police station where the accused is residing, is informed about the case and they have to comply by serving the summons at the residence/last known address of the accuse.
Issuance of Warrant by Court:
In cases where the accused remains absent on court dates even after service of summons then the case becomes slightly more grave and warrant issued by the court. Now the police has the power to take accused in the custody and bring the defaulter to the next hearing of the court.
How to Defend a Cheque Bounce Case:
It is always advisable to any defaulter of the case under sec.138, not to get afraid of any court hearings as the proceedings although are of a criminal nature and the proceedings are not as tough as hard core criminal trial. A lawyer can help you to defence this matter. The defaulter must remain present in the court during the hearing to avoid an issue of a warrant against him or her.
Process of Obtaining Bail u/s 138:
The defaulter or the accused has to submit surety. The surety has to provide all the necessary document including ownership or title deed of their house, address proof etc. upon receiving the summons from the court, both the accused and surety must remain present in court with the required documents. The court generally accepts the surety if there are valid document to his name. On accepting the surety the court mandates the accused to sign a bond along with the surety and then after bail is granted and accused is released by court.
Latest Amendment of Sec 143 (A) of Negotiable Instrument Act:
The new amended section of 143 (A) of Negotiable Instrument Act empowers the court to direct the drawer of the cheque to pay the interim compensation to the complainant upon framing of charges against the accused. The compensation amount shall not exceed 20% amount of the cheque.
Applicability of Order 37 of Civil Procedure Code (CPC) in Cheque Bounce:
Order 37 of CPC is one of the best provision in the hands of applicant to recover the debt from defaulter. It is also known as recovery suit. This is applicable in some cases were the defendant does not have any legal defence. In such cases court will not hear the defendant and issue the order of recovery from defaulter.
Non-Exclusivity of Sec 138 of Negotiable Instrument act and Sec 420 of Indian Penal Code:
Section 138 of Negotiable Instrument Act and Sec 420 are not Exclusive of each other, person can be charged with two different offences and punishments.
Sec.138 of Negotiable Instrument Act states that the issue of the facts and law to be tried and decided in prosecution under Sec 420 of IPC are not the same and law to be tried in a Prosecution under sec 138 of act. The two offences cannot be construed as arising out of the same set of facts (Double Jeopardy).
Case: Madan Mohan v/s K.M. Menon & Ors on 15th Oct 1992, Delhi Highcourt
Provision of Punishment u/s 138:
A person can be arrested for cheque bounce in India, but without a warrant from court the police cannot arrest accused. For cheque bounce in India it is a cognisable offence u/s 138 of Negotiable Instrument Act 1818 and is punishable with an imprisonment of term which may extended to 2 years or with fine which may extend to twice the amount of cheque or with both.
Mediation: A Legal Remedy
In the even that a parties seek reference to mediation, the court should list the matter before the concerned mediation centre on a fixed date. The court as well as mediator should encourage parties to resolve their overall disputes. Settlement report will be made and produce before the court after the completion of mediation.