Bouncing of Cheques

Bouncing of Cheques 

A cheque is a document that orders a bank to pay the individual on whose behalf the cheque has been issued a certain sum of money. The cheque is used to make a safe and convenient payment.The four main items on a cheque are: -

• Drawer, the person or entity who makes the cheque
• Payee, the recipient of the money
• Drawee, the bank or other financial institution where the cheque can be presented for payment
• Amount, the currency amount

Till 1st April 2012, cheques in India were valid for six months from the date of its issue.    After that, the Reserve Bank of India reduced its validity to three months from the date of issue.

The Negotiable Instruments Act, 1881 is the legal instrument which states that cheque bouncing is a crime. Section 138 of the Negotiable Instruments Act is applicable for the dishonour of the cheque. However, if the drawer makes payment of the cheque amount within fifteen days from the date of receipt of the notice, then the drawer does not commit any offence. If the drawer does not pay until the expiry of the 15 days' time, the payee has the right to file a complaint in the court of law.

Causes of Cheque Bouncing

1. Insufficient Funds or Exceeds Arrangements: If your account lacked funds when the cheque was issued, then the cheque may bounce. If the amount held in the account is less than the stipulated amount, then the cheque can bounce in such a situation.

2. Date Mentioned on Cheques: It is a vital part of the cheque, and any discrepancy on that front could lead to the cheque being bounced.

3. Signature Mismatch & Overwriting: This is a very common reason for bouncing cheques in India. Disfigured cheques with overwriting are not entertained.

4. Drawer Stopped Payment: This is also a common reason for cheque bouncing.

Written Notice to the Drawer:

The ideal step would be to send a cheque bounce legal notice to the drawer within 30 days from the date of acknowledging the ‘Cheque Return memo’, stating wherein, to make the payment to the payee within 15 days from the date of receipt of such notice by the drawer.

After expiration of 15 days:

If the drawer fails to fulfill his/her payment liability, then he/she is punishable under Section 138 cheque bounce. The payee can file the complaint in the Court