Consequences of Wrongful Dishonors

Rightful dishonour of cheque

The following are some of the circumstances where the paying banker is justified in dishonouring a cheque.

• Insufficient funds: Where there are no sufficient funds to meet the requirement in the cheque or when the amount to the customer’s credit is insufficient to meet the whole amount of the cheque, such an instrument may be dishonoured.
• Particulars not duly filled in: A banker can dishonour a cheque if all the required particulars of the cheque are not in order. The date, name of the payee, the amount written in both words and numbers, signature of the drawer, account number etc., is to be filled in properly, if not the banker can refuse to dishonour the cheque.
• Not properly presented: If the cheque is not properly presented, that is to say that the cheque is presented at a branch where the customer doesn’t have an account or is presented after banking hours or is not presented within a reasonable time, the banker may refuse to honour the cheque.
• Death of the customer: Upon the death of the customer, the balance in that account is vested with their legal representatives and once the banker receives notice of the customer’s death, he may refuse to honour any cheques that were issued by the drawer before his death, because the amount in the account now belongs to his legal representatives.

The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. This Act has been amended many times since 1881.

According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.

If payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing.

The payee has to sent the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.

However, the complaint should be registered in a magistrate’s court within a month of the expiry of the notice period. It is essential in this case to consult an advocate who is well versed and experienced in this area of practice to proceed further in the matter.

Conditions for prosecution

Legally, certain conditions have to be fulfilled in order to use the provisions of Section 138.

The cheque should have been drawn by the drawer on an account maintained by him.

The cheque should have been returned or dishonoured because of insufficient funds in the drawer’s account.

The cheque is issued towards discharge of a debt or legal liability.

After receiving the notice, if the drawer doesn’t make the payment within 15 days from the day of receiving the notice, then he commits an offence punishable under Section 138 of the Negotiable Instruments Act.

Punishment & penalty

On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue summons and hear the matter. If found guilty, the defaulter can be punished with monetary penalty which may be twice the amount of the cheque or imprisonment for a term which may be extended to two years or both. The bank also has the right to stop the cheque book facility and close the account for repeat offences of bounced cheques.

If the drawer makes payment of the cheque amount within 15 days from the date of receipt of the notice, then drawer does not commit any offence. Otherwise, the payee may proceed to file a complaint in the court of the jurisdictional magistrate within one month from the date of expiry of 15 days prescribed in the notice.