Cheque Bounce Case Procedure Under the Negotiable Instruments Act

The Negotiable Instruments Act, 1881 (NI Act) is a significant piece of legislation in India that governs the usage of negotiable instruments such as cheques, promissory notes, and bills of exchange. Among these, the cheque is the most commonly used instrument for financial transactions. However, instances of cheque bounce, which occurs when a cheque cannot be processed due to insufficient funds or other reasons, are prevalent. This article delves into the procedure for filing a cheque bounce case under the NI Act, the legal implications, and the steps involved in the process.

Understanding Cheque Bounce

A cheque bounce occurs when a bank returns a cheque unpaid. The reasons for a cheque bounce can vary, including:

• Insufficient funds in the drawer's account.
• Account closed.
• Signature mismatch.
• Post-dated cheques presented before the due date.
• Cheque issued against a stopped payment request.

Under Section 138 of the NI Act, dishonor of a cheque due to insufficient funds or if it exceeds the amount arranged to be paid by the drawer constitutes an offense. The law provides a mechanism for the payee to seek legal recourse against the drawer of the cheque.

Legal Framework Governing Cheque Bounce Cases

The key provisions of the NI Act relevant to cheque bounce cases include:

• Section 138: Deals with the offense of dishonor of a cheque for insufficiency of funds.
• Section 139: Presumes the cheque was issued for the discharge of a legally enforceable debt.
• Section 142: Provides the procedure for filing a complaint and the conditions to be fulfilled before initiating legal proceedings.

Procedure for Filing a Cheque Bounce Case

The procedure for filing a cheque bounce case under the NI Act can be summarized in the following steps:

1. Issuance of Cheque

The process begins when the drawer issues a cheque to the payee for a specific amount as payment for a debt or liability.

2. Presentation of Cheque

The payee presents the cheque to the bank for encashment within the validity period, which is generally three months from the date of issuance.

3. Dishonor of Cheque

If the cheque is dishonored, the bank will provide a 'Cheque Return Memo' to the payee, stating the reason for the dishonor.

4. Notice to Drawer

Upon receiving the cheque return memo, the payee must issue a legal notice to the drawer within 30 days of receiving the memo. The notice should demand payment of the cheque amount and inform the drawer about the dishonor.

5. Filing a Complaint

If the drawer fails to make the payment within 15 days of receiving the notice, the payee can file a complaint in the appropriate Magistrate's Court under Section 138 of the NI Act. The complaint must be filed within one month from the expiry of the notice period.

6. Court Proceedings

Upon filing the complaint, the court will issue a summons to the drawer. The drawer is entitled to defend themselves, and the court will conduct a trial to ascertain whether the offense under Section 138 has been committed.

7. Judgment and Sentencing

If the court finds the drawer guilty, it may impose a fine which may extend to twice the amount of the cheque or imprisonment for a term which may extend to two years, or both.

Important Considerations

When dealing with cheque bounce cases, several important considerations should be kept in mind:

• The payee must ensure that the cheque is presented for encashment within the validity period.
• The notice to the drawer must be sent within 30 days of receiving the cheque return memo.
• The complaint must be filed within one month from the expiry of the notice period.
• It is advisable to keep copies of all documents, including the cheque, return memo, and notice, for future reference.

Defenses Available to the Drawer

The drawer of a bounced cheque may raise several defenses in court, including:

• The cheque was issued as a security and not for discharge of a liability.
• The cheque was not signed by the drawer.
• The cheque was issued under coercion or undue influence.
• The cheque was lost or stolen.
• The amount mentioned in the cheque was altered without the drawer’s consent.

Penalties for Cheque Bounce

As per Section 138 of the NI Act, the penalties for cheque bounce include:

• A fine that may extend to twice the amount of the cheque.
• Imprisonment for a term that may extend to two years.

Additionally, the drawer may also be liable for civil suits for recovery of the cheque amount along with interest and costs.

FAQs

1. What is the time limit for filing a cheque bounce case?

The complaint must be filed within one month from the expiry of the 15 days notice period given to the drawer.

2. Can a cheque bounce case be filed if the cheque is post-dated?

No, a post-dated cheque cannot be presented for encashment before its due date, and hence, a case cannot be filed for its bounce before that date.

3. What is the role of the legal notice in a cheque bounce case?

The legal notice is a prerequisite for filing a complaint under Section 138. It informs the drawer about the dishonor and provides them an opportunity to make the payment.

4. Is it necessary to file a case in the same city where the cheque was issued?

Yes, the complaint must be filed in the jurisdiction where the cheque was presented and dishonored.

5. What if the drawer does not receive the legal notice?

If the drawer does not receive the notice, the payee must prove that the notice was sent to the correct address. Failure to do so may lead to dismissal of the case.

6. Can a cheque bounce case be settled amicably?

Yes, cheque bounce cases can be settled amicably between the parties before or even during the court proceedings.

7. What are the consequences of filing a false cheque bounce case?

Filing a false case can lead to criminal liability for the complainant under Section 211 of the Indian Penal Code.

8. Can a company be prosecuted for cheque bounce?

Yes, a company can be prosecuted under the NI Act, and in such cases, the directors or officers responsible for the issuance of the cheque can also be held liable.

9. What happens if the drawer pays the cheque amount after receiving the notice?

If the drawer pays the cheque amount within the notice period, the payee cannot proceed with the complaint, as the matter is resolved.

10. Is it possible to appeal against the judgment in a cheque bounce case?

Yes, the aggrieved party can file an appeal against the judgment of the trial court in the higher court within the stipulated time frame.

Conclusion

Cheque bounce cases are a common legal issue faced by individuals and businesses in India. The NI Act provides a structured procedure for addressing such offenses, ensuring that payees have a legal recourse against drawers who default on their obligations. Understanding the procedure, the legal framework, and the implications of cheque bounce cases is crucial for both payees and drawers. It is advisable to seek legal counsel to navigate the complexities of these cases effectively.