Dishonour of Cheque

Section 138 to 142 of Negotiable Instrument Act, 1882 deals with dishonour of cheques for insufficiency of funds in the account.

 

Penalty For Dishonor of Cheque

 

Section 138 provides penalty for dishonor of cheque for insufficiency etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any money to another person from out of that account for the discharge, in whole or in part, of any ‘debt or other liability’ (a legally enforceable debt or other liability) is returned by the bank unpaid -

 

• either because of 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,

 

such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to 2 years or with fine which may extend to twice the amount of the cheque, or with both.

 

The penal provision in this cheque shall not apply unless-

 

the cheque has been presented to the bank within a period of three months (with effect from 01.04.2012, before that it is six months) from the date on which it is drawn or within the period of its validity, whichever is earlier;

 

the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing to the drawer of the cheque within 30 days of the receipt of information by him from the bank regarding the return of the cheques as unpaid; and

 

the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within 15 days of the receipt of the said notice.

 

Jurisdiction of Magistrate for Filing Cheque Bounce Suit

 

The payee can file the complaint before the Magistrate in any of the following places: 

Where the cheque was drawn.

Where the cheque was presented for payment.

Where the payment had to be made.

Where the cheque is dishonoured.

Where the demand notice was served. 

The cheque bounce complaint has to be filed before the Metropolitan Magistrate if the cheque bounce suit falls in any metropolitan city. If the suit for cheque bounce falls in any other city, the complaint must be filed before the Judicial Magistrate.

 

Criminal Suit Vs Civil Suit

A civil suit can also be instituted against the drawer to pay the cheque amount. In the case of the institution of a civil suit, the payee cannot issue a cheque bounce notice. The payee can only issue legal notice for recovery of the amount.

The offence of cheque bounce under Section 138 of the Act provides criminal punishment for cheque bounce due to insufficient amount. In contrast, the civil suit for recovery does not punish the drawer and provides for only the recovery of the cheque bounce amount.

 

Offences by Companies

According to Section 141(1) of the Act, if the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was Office in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

 

Bank’s Slip Prima Facie Evidence of Certain Facts

According to Section 146, the Court shall, in respect of every proceeding under this Chapter, on production of Bank’s slip or memo having thereon the official mark denoting that the cheque has been dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disproved.

 

Interest Received in case of Dishonour of Cheque

According to Section 80, interest between any parties to the instrument, be calculated at the rate of 18% P.a , from the date at which the same ought to have been paid by the party Charge, until tender or realization of the amount due thereon, or until such date after the institution of a suit to recover such amount as the Court directs.

 

New Cheque Bounce Rule

Under the new rule, cheques that are dishonored due to insufficient funds will be processed through the Cheque Truncation System (CTS) and a system of Positive Pay. This means that banks will now need to ensure that all cheques of value Rs. 50,000 and above are only cleared if the issuer has confirmed the details of the cheque to the bank through electronic means.

To avail the Positive Pay service, the issuer has to provide details of the cheque such as cheque number, date, payee name, and amount, to the bank through various channels including mobile banking, internet banking, ATM, or by visiting the branch. The bank will then cross-check these details with the cheque presented for payment.

If any of the details provided by the issuer do not match with the cheque presented, the bank will immediately inform the issuer for confirmation before proceeding with the payment. This new rule is expected to prevent frauds and unauthorized payments by ensuring that only genuine and authorized cheques are processed for payment.

It is important to note that the RBI has also mandated banks to make customers aware of the Positive Pay system and the need to provide details of cheques of Rs. 50,000 and above. This can be done through various means including SMS, email, or phone calls. Additionally, banks have been asked to ensure that customers have a seamless experience while availing of the Positive Pay service.

 

Article Compiled by:-

Mayank Garg

+91 9582627751

 

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Material. etc.

 

 

 

 

 

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