Cheque Bounce Cases

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Cheque Bounce Cases
Cheque Bounce Case

A cheque bounce case is instituted when a cheque is presented for payment and it is returned by the bank unpaid due to insufficient funds, account closed, mismatch of signature, or any other reason. The person who has received the bounced cheque can then send a legal notice to the person who issued the cheque demanding payment within 15 days. If the payment is not made within the stipulated time, the person who received the bounced cheque can file a complaint in the court within 30 days from the expiry of the notice period. 

Cheque bounce cases are governed under section 138 of the Negotiable Instrument Act 1881. According to this section, if a cheque is dishonoured due to insufficient funds in the account, the issuer of the cheque can be held liable for a criminal offence. It is a bailable offence and punishable to imprisonment for a term not more than two years or a fine that can extend to twice the amount of the cheque or both.

Procedure for a cheque bounce cases
  1. Presentation: The cheque must be presented to the Drawee-Bank within 3 months from the date on which it is drawn or within the period of its validity, whichever is earlier.
  2. Notice: Within 30 days of the receipt of information from the bank about dishonour of the cheque, the payee must issue a legal notice upon the drawer to make payment of the cheque amount with 15 days from the date of the receipt of the said notice;  the notice shall bear all the detail information as required under the Negotiable Instrument Act; The drawer gets 15 days from the receipt of notice to make the payment to avoid liability.
  3. Complaint: If the drawer does not reimburse the cheque amount even after the expiry of 15 days, then the payee must file the complaint case under section 190/200 CrPC read with section 138 of the NI Act 1881 before a Magistrate Court within 30 days of the expiry of 15 days of issuing the cheque notice.
  4. Pre-trial Stage: The procedure followed in a cheque bounce trial is the same as in the summon trial, wherein the judicial magistrate will take cognizance of the complaint on the basis of the contents of the complaint and proceeds further to examine the complainant (drawee). 
  5. Service of Summons: Once it is established that there is a prima facie case against the accused (drawer), the Court will issue summons upon the accused (drawer) to appear in the Court.
    1. Non-appearance: If the accused (drawer) fails to appear in the Court, the Court will issue a bailable warrant against the accused (drawer) and further convert it to non-bailable warrant if the accused deliberately evades his appearance in the Court.
    2. Appearance: If the accused (drawer) appears in the Court, the first thing he should do is to present a bail application recalling the warrant of arrest, if any,  and the Court after hearing his application may consider and allow his application to be released on bail.
  6. Mediation: If there exist an element of settlement between the parties, the Court shall inquire from the parties about their readiness towards alternative dispute mechanism.
    1. Once the parties choose a suitable mechanism to resolve their conflict, the Court shall refer the parties to such forum while stipulating the prescribed time period, within which the matter should be settled (ideally a period of six weeks) and the next date of hearing in order to monitor the progress and outcome of such mediation.
    2. If the parties seek a settlement through mediation, the Court should list the matter before the concerned mediation center or mediator on a fixed date directing the presentation of the parties before the mediator on the said date.
  7. If settlement is arrived between the parties through mediation, then the mediator shall draw
    1. a settlement deed between the parties which shall incorporate the following:-
        1. Clear stipulation of the amount agreed to be paid by one of the parties to the other;
        2. Clear & simple method, manner and mode of payment;
        3. Undertakings by the parties to abide and be bound by settlement terms;
        4. Clear stipulation of penalty in event of default/ breach of settlement terms; 
        5. Stipulation stating voluntariness of settlement and declaration being made by free will.
    2. On receiving the settlement deed, the Magistrate should record the tatement of the parties on Oath affirming the terms and contents of the settlement entered into voluntarily with free will along with an undertaking to abide by its terms supported by an affidavit. 
    3. The Magistrate should satisfy himself that the settlement agreement is lawful, genuine, equitable, not opposed to public policy, voluntary and that there is no legal impediment in accepting the same.
    4. Pursuant to recording of the statement of the parties, the Magistrate should specifically accept the statement of the parties, their undertakings and hold them bound by the terms of the settlement terms entered into.
    5. In the event the mediation is accepted by the Court and not complied with:
      1. The Magistrate would direct the accused to make payment in the same manner as fine would be recovered.
      2. Additionally, appropriate action might be taken upon failure of compliance with the undertaking including proceedings for Contempt of Courts.
  8.  If the settlement is not arrived between the parties through mediation, the Court will frame the charges and ask the accused (drawer) whether he pleads guilty or not. (Section 252, 253 & 254 CrPC.)
  9. Trial: The court will then conduct a trial to determine whether the accused (drawer) is guilty of the offence of dishonor of cheque.
    1. Evidence & Witnesses of the Complainant:
        1. Evidence by the complainant;
        2. Summoning the Witnesses of complainant; 
        3. Cross examination of the witnesses of the complainant by the accused
    2. Evidence & Witnesses of the Accused
        1.  Evidence by the accused; 
        2. Summoning the witnesses of accused;
        3. Cross examination of the witnesses of the accused by the complainant
    3.  Oral argument: Submission of the memorandum of arguments, if any. (Section 314 CrPC)
    4. Judgment by the Court:
        1. Acquittal: if any the Magistrate finds that the accused is not guilty then he shall record an order of acquittal, 
        2. Conviction: If the court finds the accused (drawer) guilty, it can impose a fine or imprisonment or both.
  10. Post Trial: if convicted the accused (drawer) can  prefer an appeal against the decision of the court within 30 days of the order. 
Alternatively to the above criminal proceeding under section 138 of NI Act, the complainant (drawee) can initiate a criminal proceeding under sections 420, and 406 IPC against the drawer.

Documents required to file a cheque bounce case are:
  • Copy of the notice served on the drawer.
  • Proof of service of notice, either courier receipt or registered post receipt.
  • Original cheque on record.
  • Cheque return memo issued by the banker to the drawer.
  • Proof of the existence of a legally enforceable debt or liability.
What should the drawer do on receipt of the cheque bounce notice?

The initial stage is to reply to the legal notice with your defense or pay the requisite sum by cheque in order to halt future legal proceedings. If the cheque amount is paid at the beginning, the issue will be resolved immediately. However, if the drawer does not pay the cheque amount within 15 days, then the drawer has to approach the concerned court where the cheque bounce case has been instituted, for bail and defend his case by placing his evidences before the Court. 

Conclusion:

In conclusion, cheque bounce cases can have serious consequences for both the issuer and the recipient of the cheque. For the issuer, it can lead to a criminal record, imprisonment, and a fine. It can also damage their reputation and affect their creditworthiness. For the recipient, it can lead to financial losses, legal expenses, and a delay in receiving payment. It is important to follow the legal procedure in such cases and take steps to avoid them in the first place.

To avoid cheque bounce cases, it is important to ensure that there are sufficient funds in the account before issuing a cheque. It is also important to keep track of the cheques issued and ensure that they are not post-dated or issued without sufficient funds in the account.
 
Case Law:
For cheque bounce cases
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