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New Provisions for Bounced Cheque Under Negotiable Instruments Act

IndianMoney.com Research Team | Posted On Monday, April 22,2019, 05:09 PM

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New Provisions for Bounced Cheque Under Negotiable Instruments Act

 

 

What Happens When a Cheque is Bounced?

Cheque bounce is one of the most common types of financial offences in India. A cheque bounce can lead to dire consequences for the issuer. Given below are the ways a cheque bounce can affect the issuer:

  • If a cheque bounces due to insufficient funds or signature mismatch then both parties are charged by their respective banks
  • A bounced cheque can also negatively impact the CIBIL score of the drawer of the cheque
  • If the cheque is dishonoured wilfully, the defaulter can be prosecuted under Section 138 of Negotiable Instruments Act, 1881 or Sec 417 and 420 of the Indian Penal Code (IPC) 1960. 
  • Banks can stop issuing cheque book facilities to any customer booked for repeated cheque bounce offence at least four times on cheques valued at over Rs. 1 crore.

Section 138 of the Negotiable Act 1881

A cheque is referred to as a negotiable instrument as it is accepted in lieu of payment of money. However, negotiable instruments started losing their credibility by not being honoured on presenting it to the bank. The reason for a cheque bounce can be an insufficient balance in the drawer’s bank account, signature mismatch or wilful default. As per Section 138 of the Negotiable Instrument Act, 1881 the dishonour of cheque is a criminal offence and is punishable under law.  Section 138 of the Negotiable Instrument Act, 1881 states:

Dishonour of cheque for insufficiency of funds in the account: Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for 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: Provided that nothing contained in this section shall apply unless—

  • The cheque has been submitted to the bank within six months from the date of its issue or within the period of its validity, whichever is earlier.
  • The holder of the cheque in due course of the cheque makes a demand for the payment of the mentioned amount by giving a notice in writing, to the drawer of the cheque. If the payee does not receive the payment within 30 days after the notice has been written then the above-mentioned terms shall apply to the issuer.
  • The issuer of the cheque fails to make the payment to the payee or as the case may be, to the cheque holder within the due course of the cheque, within fifteen days of the receipt of the said notice(sic).

Jurisdiction of Cheque Bounce Case:

Dishonour of cheques can only be filed before the court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment is situated. 

Latest Amendment in the Negotiable Instrument Act:

  • The Negotiable Instruments (Amendment) Bill, 2017, aims to amend the Negotiable Instruments Act, 1881. The amendment states that the drawer of the bounced cheque is liable to receive interim compensation to the complaint.
  • The interim compensation will, however, not exceed 20% of the amount of the cheque that was dishonoured.
  • The drawer of the dishonoured cheque must be paid with the interim compensation in a summary trial or a summons case. It is applicable even if he pleads not guilty to the charge made to the complaint.
  • The drawer of the cheque will be given a specified time period of 60 days from the date of order within which he has to pay the interim compensation. In case the court is satisfied, it can grant a maximum extension of another 30 days.
  • In case the drawer of the cheque is declared innocent in the case, the complainant has to repay the drawer the interim compensation along with interest. The drawer must be compensated within 60 days from the date of the court order.
  • The negotiable instruments act also aims to reduce delays in resolving cases of cheque bouncing. However,theNegotiable Instruments Bill, 2017 must be cleared by both houses of the parliament before it is established as an act.

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