20 April 2018 11:24AM
Definition of a Cheque
As per its legal definitions under Section 6 of the Negotiable Instruments Act, 1881, a cheque is a “bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand and it includes the electronic image of the truncated cheque and a cheque in the electronic form”. In simple words, a cheque is a bill of exchange that is payable upon demand only and has to be drawn on a specific banker. A cheque under the Negotiable Instruments Act, 1881 includes not only a cheque in its physical form but also an electronic cheque which has been signed using a digital signature.
There are three parties to a transaction through a cheque:
The essential feature of the cheque is that it is payable on demand. This means that even if a bill of exchange is drawn on a banker, as long as it is not payable on demand, it cannot be considered a cheque. The other essential features of a cheque are:
What is the meaning of a ‘cheque bounce’?
A cheque bounce is also referred to as dishonouring of cheque in legal terminology. Section 92 of the Negotiable Instruments Act, 1881 is the section that defines cheque bounce as “A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.” In simple terms, a cheque bounce or a dishonour of cheque is when the banker/drawee does not pay the cheque amount to the payee.
There are a number of reasons why a cheque may be dishonoured. Listed below are some of the cases of cheque bounce:
Cheque bounce in India is criminal offence and Section 138 of the Negotiable Instruments Act, 1881 provides the punishment/ penalty for cheque dishonour or cheque bounce in cases where either the drawer’s account does not have sufficient money or when the amount exceeds the overdraft limit. Section 138 imposes a strict liability upon the drawer with a punishment of imprisonment of up to two years or a fine up to twice the cheque amount or even both.
The following conditions need to be met in order for the penalty under Section 138 to be applicable:
Once these conditions have been met, a cause of action against the drawer arises i.e. the drawer can now be held liable under Sec. 138 for cheque bounce.
However, there are three exceptions to this criminal liability. The punishment under Section 138 cannot be me made applicable in the following cases:
What should you do when your cheque bounces?
One should follow the following procedure in the event of a cheque bounce:
When a cheque cannot be paid by a bank, the bank has to inform the payee that the cheque has been dishonoured and that the payment cannot be made. The payee then must send a Notice of Dishonour or a Demand Notice to the drawer within 30 days from the time the bank returns the cheque to the payee. This notice needs to be given before any legal action through them judicial system can be taken so that the drawer of the cheque can be informed that he/she shall be liable in case they cannot pay the cheque amount.
There is no specific format for such a legal notice but it should contain the following essential elements:
The demand notice can be given by the holder of the bill/ the payee but it is prudent to first get the notice checked by a lawyer specialising in cheque bounce. It is also advisable for keep safe the proof of delivery of the notice as it may come of use in when the case goes to court.
Once the demand notice has been sent to the drawer but he/she does not provide with a reply within 15 days starting from the date of delivery of the demand notice/ notice of dishonour and does not pay back the due amount, the payee is entitled to file a formal complaint with the competent court. The payee has 30 days after the end of the said 15 days period to file such a complaint.
A competent court is the court which has the power to take up the payee’s case. A court is competent if, within its jurisdiction, any of the given events have occurred:
The complaint should contain the important details of the event otherwise the court may dismiss the complaint. These important details include the date of cheque bounce/ dishonour of cheque, date of presentation of cheque and the date when the demand notice was issued.
In addition to the complaint, the oath letter and photocopies of all related documents like the cheque itself, a copy of the demand notice, proof of delivery of demand notice etc. should also be kept at hand.
When it is time to file the suit in court, the memo of the advocate is very important as well as the complainant’s signature. Once the case has been filed, the Judicial Magistrate First Class checks all the documents that been submitted by the complainant. The documents are cross checked against the originals and therefore all the original documents have to be presented to the court. The court also checks for the limitation period to determine if the suit has been filed within time. The complainant has to fill a Process Form (called a bhatta) which asks for their details.
Once this paperwork is done, the court will summon the accused drawer of the cheque which means that the court will ask him/her to appear before it on a particular date.
A bailable warrant can be issued by the court, upon the request of the complainant, against the accused if they do not comply by the summons order and fail to appear before the court. But if the accused still absconds and does fail to appear before the court, then the court has the power to issue a non-bailable warrant against them.
The amount of court fee differs depending upon the amount of the cheque. For cheques up till Rs. 50,000, a court fee of Rs. 200 is applicable. For cheques between Rs. 50,000 and Rs. 2,00,000, the court fee is Rs. 500. And for cheques of amount more than Rs. 2,00,000, the court fee is Rs. 1000.
Some additional points
In January 2018, the Negotiable Instruments (Amendment) Bill, 2017 was introduced into the Lok Sabha. The amendments were introduced as a measure against the long drawn court proceedings of cheque bouncing which are often delayed by use of legal tactics like stay orders and appeal applications. This bill proposes that there should be provisions for interim compensation i.e. the court would have the power to order the drawer of the cheque/ accused to pay to the complainant interim compensation for the time till the case concludes. Such compensation can be payable under some conditions like when the accused has pleaded not guilty to cheque bounce. This compensation cannot be more than 20% of the total cheque amount and is payable by the accused within a time period of 60 days from the date the court issues such an order.
If the accused is declared innocent and acquitted by the court, then the complainant will have to return this interim compensation amount to the drawer in addition to an interest which should be paid within a time frame of 60 days.
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