Cheque Bounce Laws in India: Everything You Need to Know About Section 138`
The bouncing of a Cheque is a legal issue that brings severe financial and legal complications for both the drawer and the payee. The bouncing of a Cheque due to legally valid causes in India is treated as a criminal matter under Section 138 of the Negotiable Instruments Act, 1881.
When you get a Cheque which is dishonored by the bank, then it is vital to act fast, as there is a specified period within which the legal notice must be served and the complaint must be filed.
Cheque Bounce – What Is It?
A Cheque bounce takes place in a scenario where the bank rejects the presentation of the Cheque and dishonors it.
Reasons can be any of the following:
* Lack of sufficient balance in the bank account
* Exceeded the limit of the agreement with the bank
* Account closure
* Stop payment order in certain situations
* Any other reason specified in the memo from the bank
Legal implications will differ in each individual case depending upon whether the conditions stipulated in Section 138 are fulfilled or not.
What Is a Cheque Bounce Case Under Section 138 NI Act?
Section 138 of the Negotiable Instruments Act, 1881, deals with dishonour of cheques issued towards a legally enforceable debt or liability, subject to fulfilment of the statutory conditions.
A Cheque bounce case generally involves three important stages:
1. Presentation of the Cheque within its validity period.
2. Issuance of a written demand notice after receiving information regarding dishonour.
3. Filing of a complaint before the competent court if payment is not made within the prescribed period after service of the notice.
What Should You Do in Case of Dishonor of a Cheque?
In case of dishonour of a cheque, one should keep all necessary documentation which includes:
– Original cheque
– Bank return memo
– Details of cheque deposit
– Bank statement
– Invoice/agreements and/or any other document evidencing the transaction
– Proof of underlying obligation/debt
– Communication with drawer of the cheque
– Notice served by lawyer
– Evidence of service of notice
Documentation may differ from transaction to transaction.
Legal Notice in a Cheque Bounce Case?
After receiving information from the bank regarding dishonour of the Cheque, the payee or holder in due course may issue a written demand notice to the drawer, subject to the statutory requirements.
The notice should properly identify:
* Cheque number and date
* Cheque amount
* Bank details
* Date and reason for dishonor
* Underlying legally enforceable liability
* Demand for payment of the cheque amount
* Consequence of failure to make payment within the statutory period
A defective or delayed notice can create significant procedural issues. Therefore, the notice should be prepared carefully.
Time Limit in Cheque Bounce Cases?
Limitation is one of the most important aspects of a cheque bounce case.
The statutory procedure contains specific timelines relating to:
* Presentation of the cheque
* Receipt of information regarding dishonor
* Issuance of the demand notice
* Period available to the drawer to make payment
* Filing of the complaint after the cause of action arises
Because limitation can directly affect the maintainability of a complaint, the dates should be calculated carefully from the bank return memo and service of the legal notice.
What Happens If the Drawer Does Not Pay?
- If the drawer fails to make payment within the prescribed period after receiving the statutory demand notice, the payee may initiate proceedings under Section 138, subject to fulfillment of the legal requirements.
- The complaint is filed before the court having the appropriate territorial jurisdiction in accordance with the applicable law.
- The court may thereafter proceed according to the prescribed criminal procedure.
Is Cheque Bounce a Criminal Offense?
- Yes. Dishonor of a cheque can constitute a criminal offense under Section 138 of the Negotiable Instruments Act when all statutory conditions are fulfilled.
- However, every returned cheque does not automatically result in conviction. The complainant must establish the ingredients required by law, and the accused may raise legally permissible defenses
What Defenses Can Be Taken in a Cheque Bounce Case?
Depending upon the facts, possible defenses may include:
* Absence of Legally Enforceable Debt: A Key Defense in Cheque Bounce Cases
* Cheque Not Issued for the Alleged Debt or Liability
* Material alteration or other defects
* Payment already made
* Dispute regarding the underlying transaction
* Failure to comply with statutory requirements
* Limitation issues
* Improper jurisdiction
* Other legally available defenses based on the evidence
The defense available in each case depends upon the documents, transaction, and surrounding circumstances.
Can a Cheque Bounce Case Be Settled?
Yes. Cheque bounce disputes can, depending on the circumstances and applicable law, be resolved through settlement or compounding.
Settlement may help parties avoid prolonged litigation and resolve the underlying financial dispute. The terms of settlement should be properly documented and placed before the appropriate court wherever required.
Why You Need a Lawyer for a Cheque Bounce Case?
Cheque bounce litigation involves strict statutory requirements and limitation periods. A lawyer can assist with:
* Reviewing the transaction
* Examining the cheque and bank return memo
* Calculating limitation
* Drafting the legal demand notice
* Preparing the complaint
* Preparing supporting documents and evidence
* Representing the complainant or accused
* Advising on settlement and compounding
* Conducting trial and cross-examination where required
Lawyer for Cheque Bounce in Delhi!
- In case of cheque bounce case in Delhi, seeking legal advice at the right time will make you aware of your rights, duties, and possible course of action.
- Advocate Akash Garg [EQUITEE CHAMBER] offers legal aid in cases of cheque bounce, including cases under Section 138 of the Negotiable Instruments Act, legal notice, complaint, defense, settlement, and litigation.
Require Legal Help?
- In case your cheque has bounced, do not neglect the bank return memo or seek legal help at the earliest. The statutory time frame could be very important.
- Consult Advocate Akash Garg for legal help in cases of cheque bounce in Delhi.
Disclaimer
The information provided above is only for general information purposes and cannot be relied upon as legal advice. Procedure and limitation shall depend on the circumstances of the individual case.