Dishonour of Cheque in India: Legal Recourse

Dishonour of Cheque in India: Legal Recourse

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Dishonour of Cheque in India; Legal Recourse
Dishonour of Cheque in India; Legal Recourse

Dishonour of cheque is very common problem these days so, it is very important to have a clear knowledge about it. To understand dishonour of cheque we have to firstly understand what is cheque- cheque is a type of negotiable instrument which is used to transfer money.

Dishonour of Cheque in India; legal recourse
Dishonour of Cheque in India; legal recourse

It is a safe and useful negotiable instrument as it can be just transferred by hand delivery. Defining cheque, we can say that “Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument.” Sec 6 of NI Act defines “cheque” as, “a bill of exchange that is to be drawn on a banker and which cannot be issued without a demand.”

There are three parties to cheque-

 

Dishonour of Cheque in India; legal recourse
Dishonour of Cheque in India; legal recourse

Dishonour of the negotiable instruments means that loss of honour or disrespect the tool on the part of the maker, drawer, or acceptor etc. which led to the consequence and that is non- realization of payment due on the instrument. In India, the law regarding negotiable instrument is governed by the Negotiable Instruments Act of 1881.The most important section in this act is section 138 that deals with “Dishonouring of a cheque”. The offence of dishonour of cheque is said to be committed when all the essential of this section is present and that are-

  1. Drawing of the cheque,
  2. Presentation of the cheque to the bank,
  3. Returning the cheque unpaid by the drawee bank,
  4. Giving notice in writing to the drawer of the cheque demanding payment of the cheque amount.
  5. Failure of the drawer to make payment within 15 days of the receipt of the notice.

The drawee bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee when a cheque is dishonoured, mentioning the reason for non-payment. The payee’s banker then gives the dishonoured cheque and the memo to the payee. The holder or payee can resubmit the cheque within three months of the date on it, if he believes it will be honoured the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally.

Dishonour of Cheque in India; legal recourse
Dishonour of Cheque in India; legal recourse

Action for dishonour of cheque can be taken under section 138 of negotiable instrument Act. Offence under this section is punishable with a term which may be extended to two years or with fine which may extend to twice the amount of the cheque, or with both.

Reasons for Dishonour of Cheque

  • Insufficient Funds
  • Signature not matching
  • Account Closed
  • Cheque was presented after three months
  • Payment stopped by account holder
  • Disparity in the words and figures mentioned in the cheque
  • In case of a joint account where both signatures are required but only one is there
  • Death of the customer
  • Insanity of the customer
  • Crossing limit of the overdraft
Dishonour of Cheque in India; legal recourse
Dishonour of Cheque in India; legal recourse

So, if you are also facing the problem of dishonour of cheque then the above procedures can be followed and you can seek remedy.

 

To send notice for cheque bounce, kindly contact here

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