In India, Cheque bounce is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881(as Amended in 2018) punishable with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.
When the holder of the cheque i.e. PAYEE presents a cheque to his bank for its encashment through clearing and the same cheque is returned unpaid by the bank with a return memo of Insufficient Funds or similar reasons, the cheque is said to have bounced
Cheque bounce can occur for several reasons, but if a cheque bounces due to insufficient funds in the drawer’s account, it amounts to an offence under the Act. The bank must reject the cheque presented for payment with a return memo stating the reason as insufficient funds.
However the other reasons for rejection by bank like Refer to Drawer, Account Closed, Payment stopped, Exceeds Arrangement and Account inactive are stated to be valid reasons for initiating complaint under Negotiable Act.
REASONS OF CHEQUE BOUNCE
The various reasons for cheque bounce situation are explained herein below:
INSUFFICENT FUNDS: This is the most common among cheque rejection reasons and cheque bounce cases. If there is not enough balance in the drawer’s account to make the payment of the cheque, the bank will reject and return the cheque to the payee with a return memo stating insufficient funds to pay the cheque amount.
EXCEEDS ARRANGEMENT: If at the time of presentment of the cheque the drawer may have funds in the clearing process resulting in dishnour of cheque with reason of exceeding the arrangement of funds. However, there is no excuse for issuing such cheques, and the law take strict action against such cheque bounces.
EXPIRED CHEQUE VALIDITY: Once the drawer issues the cheque, it must be presented for encashment within THREE months of the date written on it. The cheque is returned by the bank as dishonoured being expired if not presented within the said period of THREE months from its date.
OVERWRITING ON CHEQUE: If the signature or cheque amount or any other words has been found to be overwritten by cutting or re-writing on the cheque, the cheque is bound to be returned as rejected for overwriting on the face of cheque.
DAMAGED OR MUTILATED CHEQUE: If a cheque is damaged or disfigured and the details are not visible or have marks or stains, the cheque will bounce.
SIGNATURE NOT TALLY OR MISMATCH: If the drawer’s signature is unclear or absent or does not match the one in the bank’s data, the cheque will be returned as dishonoured.
ACCOUNT CLOSED OR INACTIVE: If the bank account of the drawer is found to be inoperative or closed on the date of presentment of cheque, the said cheque would be returned with remarks Account Closed and same would be generally treated as an offence u/s 138 N.I. Act
WHETHER CHEQUE BOUNCE IS PUNISHABLE OFFENCE?
Yes, cheque bounce is a punishable offence for deliberate wilful reasons as stated above and the drawer/signatory of the dishonoured cheque can be punished with an imprisonment for a term which may extend to two years, or with the fine which may extend to double of the amount of the dishonoured cheque, or with both.
WHEN CHEQUE BOUNCE DOES NOT AMOUNT TO CRIMINAL OFFENCE
Some of the instances where the cheque bounce case are exempted from punishment are:
- When the cheque is given towards advance payment without any existing liability.
- When the cheque is given as a security for future transactions.
- When disparity exists in amount stated in words and figures.
- When Alternations or cuttings are found in cheque.
- When the cheque is found mutilated or damaged.
- When a cheque is issued to a charitable trust as gift or donation.
WHAT HAPPENS TO A CHEQUE BOUNCE CASE WHEN THE DRAWER IS READY TO DEPOSIT THE CHEQUE AMOUNT?
The Hon’ble Supreme Court in its judgements held that where the Drawer is ready to pay the cheque amount along with interest and cost as assessed by the Court within first two dates of appearance, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the N.I. Act read with Section 258 Code of Criminal Procedure.
CAN AN OFFENCE OF DISHONOUR OF CHEQUE BE MADE OUT IF THE CHEQUE IN QUESTION WAS GIVEN AS A GIFT OR IN CHARITY?
No, an offence of dishonour of cheque cannot be made out if the cheque in question was given as a gift or in charity.
