How to File a Complaint for Dishonor of Cheque

Cheque bounce or dishonor of cheque is a criminal offence punishable under section 138, Negotiable Instruments Act. If a cheque is bounced due to insufficiency of funds, account closed, etc, payee can issue a legal notice demanding the amount from the drawer. If the drawer does not pay the amount within stipulated period, criminal case can be instituted against him.

Thu Jun 30 2022 | HLL Knowledge Series | Comments (0)

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Dishonor of a cheque, commonly known as cheque bounce, is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881, where the bank on which the same is drawn, declines to honor it. It is an  punishable offence with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.

When any cheque is drawn by a person on an account maintained by him with a banker for payment of any amount to another person out of that account for discharging any debt or liability, is returned by the bank unpaid, such person shall be deemed to have committed an offence under this Negotiable Instruments Act, 1881. A cheque can bounce due to various reasons, however if it bounces due to the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, it amounts to an offence under the Act.

Whenever the banker rejects a cheque which was presented for payment, it must return it with a memo stating the reason for dishonoring the same. The payee of the cheque can then issue a notice to the drawer of the cheque demanding him/her to pay the said amount of cheque which has been dishonored.
 

Parties to a Cheque


Drawer- The drawer of a cheque is the person who issues the cheque.

Payee- Payee is one in whose favor the cheque is drawn.

Drawee- The Bank of the drawer where he has an account from which the cheque amount is to be paid.

Payee’s Bank- The Bank where the Payee has a bank account in which the cheque amount shall be deposited/credited

Circumstances under which a Cheque can bounce-

  1. Insufficiency of funds – Where the balance amount in the said account is insufficient to pay the amount for which the cheque is drawn.
  2. Account closed
  3. If the cheque which is drawn is overwritten.
  4. If the cheque is mutilated, damaged, illegible, or disfigured
  5. If the signature of the drawer is absent or does not match with the specimen signature.
  6. If the details as to the payee are incorrect or missing.
  7. If an expired cheque is presented with the banker- Once the drawer issues the cheque, it must be presented for payment within three months.
  8. Remedies Against Cheque Bounce
If the cheque is dishonoured due to overwriting, mismatch of signature or incorrect payee details etc., the drawer can furnish another cheque after rectifying the mistakes. If the drawer still does not agree to furnish another cheque, the payee can then initiate civil suit for recovery against the drawer to pay the cheque amount due to him. However, if the cheque bounces due to insufficiency of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, it amounts to an offence under sec 138 of the Act, and hence a criminal complaint under the said section can be instituted along with a civil suit for recovery.

Issuance of Notice to the drawer of the cheque u/s 138, NI Act


When a cheque gets dishonored due to insufficiency of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, a notice (in writing) can be issued by the payee to the drawer of the cheque demanding the said amount from him, within 30 days of the receipt of the return memo received from the bank.

According to the law, the payee must give the drawer of the cheque, 15 days’ time from the receipt of the said notice to pay the dishonored cheque amount. If the drawer after the expiry of the said 15 days, still does not pay the cheque amount, then a criminal complaint u/s 138, NI Act, can be filed by the payee against the drawer within 30 days of the expiry of 15 days stipulated period.

The documentary requirements to file a criminal complaint u/s 138, NI Act, is as below-

  1. Copy of the notice served on drawer
  2. Proof of service of notice, i.e the courier/post receipt
  3. Original cheques
  4. Cheque return memo issued by the banker to the drawer
  5. Proof of an existing debt


Procedure to Follow After Issuance of a Cheque Bounce Notice

The payee must file the complaint against cheque bounce before the Magistrate within 30 days of the expiry of 15 days after the issuance of the notice.

The payee can file the complaint before the Magistrate either where the cheque was drawn, or where the cheque was presented for payment, where the payment had to be made, where the cheque was dishonored, or where the notice was served.

The payee/complainant must file the complaint and appear before the court of competent jurisdiction in order to provide the details of the case. If the Magistrate is satisfied as to the facts of the case and admissibility, he will issue summons to the drawer, calling upon his presence before the court.

The drawer will either accept or deny the facts stated by the payee and the court will proceed with the case if the allegations are denied. After perusing the evidence and arguments from both sides the court will pronounce its order.

To conclude, the proceedings under the cases of cheque bounce are held in summarized form meaning that the Courts do not generally proceed as they do for normal criminal trials, which are very lengthy and more complex in nature. The offence under Section 138 of the NI Act provides criminal punishment whereas filing a civil suit for recovery provides only the recovery of the dishonored amount and does not punish the drawer. Further, if the drawer of the cheque which has been dishonored is a Company, its managing director, Whole Time Director and other officers/Directors of the Company who are actively involved in the transaction, can be personally prosecuted under Section 141 of the Act.

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