Cheque Bounce Rules: In this era of digitalisation, many people still prefer to withdraw money by cheque. They write the amount on the cheque and deposit it at the bank, and the funds are then credited to their current account. However, people often face difficulties when a cheque bounces.
A cheque typically bounces due to minor errors on the part of the account holder. In some instances, a bounced cheque can even lead to legal repercussions. For this very reason, it is essential to understand the rules and associated laws regarding cheques before issuing one. This knowledge helps you identify the specific situations in which a cheque might bounce.
What is a Cheque Bounce?
A cheque is considered to have “bounced” when a bank refuses to honour the payment for the amount specified on the cheque. The most common reason for this is insufficient funds in the account. However, a cheque may also fail to clear due to signature mismatches, technical glitches related to the account, or various other reasons.
What Does the Law Say?
In India, cases involving bounced cheques are governed under Section 138 of the Negotiable Instruments Act. This legislation was enacted to instil confidence in cheque-based transactions and to curb instances of fraud. However, not every instance of a bounced cheque is deemed a criminal offence; certain specific conditions must be met for it to be classified as such.
Under Which Circumstances Does This Section Apply?
Section 138 becomes applicable when a cheque is issued to settle a debt, repay a loan, or clear outstanding dues, and subsequently bounces. Furthermore, the cheque must have been presented to the bank within its stipulated validity period. If the account lacks sufficient funds—or if the payment fails for any reason directly attributable to the person who issued the cheque—the matter may fall under the purview of Section 138.
Understanding the Recourse Available in Case of a Bounced Cheque
If a cheque bounces, the payee (the person entitled to receive the funds) is required to send a written notice to the drawer (the person who issued the cheque) within 30 days of receiving intimation from the bank regarding the bounce. Upon receiving this notice, the drawer is granted a period of 15 days to make the payment. If the individual fails to repay the amount during this period, the matter may proceed to court. If the charges are substantiated in court, criminal proceedings may be initiated against the person who issued the cheque.
Provision for Imprisonment
In the event of a conviction by the court, there is a provision for a maximum imprisonment of two years. Additionally, a fine amounting to up to twice the value of the cheque may be imposed. The court has the discretion to impose both imprisonment and a fine concurrently.
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