Bouncing of Cheques: Meaning, Remedies, Offences and Case Laws

What is Bouncing of Cheques?

The Bouncing of Cheques, also known as dishonored cheques, is a significant problem in financial transactions. It occurs when a cheque is presented for payment at a bank, but the bank refuses to pay it due to reasons like insufficient funds in the account or other issues specified by the bank. In India, the legal framework governing such instances primarily falls under the Negotiable Instruments Act. This Act lays down the rules and procedures regarding cheques, including the consequences for individuals involved in issuing or receiving bounced cheques. When a cheque bounces, it causes inconvenience and financial loss to the recipient, often resulting in legal actions against the person who issued the cheque.

Geeky Takeaways:

• Bouncing a cheque is against the law. If you write a cheque and there’s not enough money in your account, you can get into trouble.
• If you get a bounced cheque, you don’t have to suffer. You can take legal steps to get the money you’re owed, either by going to court or through other legal channels.
• The person who wrote the bounced cheque is responsible. They can’t claim they didn’t know or blame the bank. The law assumes they knew they didn’t have enough money in their account.
• The rules about bounced cheques have changed over time. Laws like the Negotiable Instruments Act have been updated to make things easier and fairer for everyone involved.
• Companies can’t get away with bouncing cheques either. If a company’s cheque bounces, it can face legal action. This can include action against the company itself and its leaders.

Bouncing of Cheque under Negotiable Instruments Act, 1881

When a person writes a cheque and gives it to someone else to cash, the bank may not pay the money if there isn’t enough money in the account. This is called a bounced cheque. It’s a serious problem because it’s against the law to write a cheque without enough money to cover it. In India, there are strict rules about this in the Negotiable Instruments Act.

If a cheque bounces, it causes problems for the person who was supposed to get the money. They might have counted on that money and now they can’t use it. They have the right to take legal action to get the money they were promised. They can send a formal notice to the person who wrote the cheque, asking for the money within a certain time. If they don’t get the money, they can go to court. The person who wrote the cheque is responsible for making sure there’s enough money in their account. They can’t say they didn’t know or blame the bank. The law assumes they knew they didn’t have enough money.

Over time, the rules about bounced cheques have changed to make things fairer for everyone. Companies also have to be careful. If a company’s cheque bounces, they can get in trouble too. This can include the company’s leaders. To avoid bounced cheques, people should make sure there’s enough money in their account before writing a cheque. They can also use electronic payments instead, which are safer and faster.

Bouncing cheques is a big deal because it affects people’s trust in the banking system. Everyone needs to follow the rules to keep things running smoothly.

Recent Amendments under Bouncing of Cheques

Over time, amendments have been made to the Negotiable Instruments Act to fix loopholes, speed up legal processes, and offer better protection to cheque recipients. Notably, in 1988, Section 138 was added. This change introduced criminal liability for dishonored cheques, aiming to discourage such actions. Section 138 made it a punishable offense for individuals issuing cheques that bounced due to insufficient funds or other reasons specified. This provision empowered payees to take legal action against defaulters, making the enforcement of cheque transactions stronger. Additionally, the amendment promoted trust in financial dealings by holding accountable those who failed to fulfill their payment obligations through cheques.

Offences by Companies for Bounced Cheques

As per Section 141 of the Negotiable Instruments Act, companies are held accountable for bounced cheques. This means that if a company’s cheque bounces, the company itself can face legal consequences. Moreover, directors, managers, or other officers involved in issuing the dishonored cheque can also be prosecuted. However, they can escape liability if they prove either their unawareness of the offense or their diligent efforts to prevent it. Essentially, this section ensures that both the company and its responsible individuals are held responsible for ensuring that the company’s cheques are honored. It acts as a deterrent against negligent or fraudulent practices concerning cheque transactions within companies and emphasizes the importance of financial responsibility in corporate operations.

Case Law

In the B. Sunitha v. State of Telangana case, the Supreme Court clarified the meaning of “debt or other liability” in Section 138 of the Negotiable Instruments Act.

The issue was whether this term only referred to legally enforceable debts. The court ruled that it also included moral obligations or liabilities arising from commercial transactions. This interpretation expanded the scope of Section 138 to cover a broader range of financial obligations. As a result, even non-legal or moral debts are now included within the legal framework, providing greater protection to recipients of dishonored cheques. This landmark judgment has had a significant impact on future cases involving bounced cheques, ensuring that all forms of financial obligations are considered under the law.

Conclusion

In conclusion, bouncing cheques is a big problem with serious consequences under the law. It messes up money transactions and makes people doubt banks. Laws have changed over time to protect people who get cheated with bad cheques. But everyone needs to be careful and responsible with their money to avoid getting in trouble with bouncing cheques. Both individuals and businesses need to follow the rules and be honest in their financial dealings. This helps keep money transactions running smoothly and makes sure everyone is treated fairly.

Bouncing of Cheques- FAQs

What should I do if I get a bounced cheque?

If you receive a bounced cheque, first try talking to the person who gave it to you. Ask why it bounced and if they can fix it. If they don’t help, you can send them a formal letter asking for the money. If they still don’t pay, you can take them to court.

How long do I have to take legal action for a bounced cheque?

You need to act quickly. You have only one month from when you got the notice from the bank about the bounced cheque to start legal proceedings.

Can I get back the money I lost because of a bounced cheque?

Yes, you can. You can go to court to get back the money from the bounced cheque, plus any extra costs you had because of it, like bank fees or legal fees.

Can a company be responsible for bounced cheques from its employees?

Yes, it can. If an employee gives a bounced cheque while working for a company, the company can also be held responsible under the law.

What happens if someone writes a bounced cheque?

Writing a bounced cheque is against the law. The person who wrote it could get punished with jail time, a fine, or both. It depends on how serious the situation is.