Laws Governing Cheque Bounce Cases

In business transactions cheques are used for paying money through the bank. Section 6 of Negotiable Instrument Act, 1881(hereinafter NI Act) defines cheque as a bill of exchange which is drawn on a specified banker and not expressed to be payable otherwise than on demand. It also includes an electronic image of a truncated cheque and a cheque in electronic form.

A cheque is said to have bounced when after drawing of cheque for discharge of debt or other liability, it was returned by bank unpaid due to unavailability of sufficient funds or it exceeds the amount arranged to be paid from that account by an agreement with that bank. There are many reasons for cheque bounce which are: account has been closed by the drawer, stoppage of payment of post- dated cheque, signature mismatched. 

Section 138 of NI Act deals with the cheque bounce cases. The objective of section 138 was to strengthen the efficiency of banking operations and to ensure credibility in transactions through cheques. To strengthen the use of cheque, parliament has made section 138 free from mens rea. Cheque bounce is a criminal offense with 2 years of punishment.

Under section 138 of NI Act, cheque has to be presented to the bank within 3 months from the date mentioned in the cheque. After receiving notice from the bank regarding return of cheque as unpaid, within 30 days a notice in writing demanding payment of money should be sent to the drawer. The notice should be drafted by an advocate mentioning all the details with the claim of only that much amount which is due. Notice served as a warning to the drawer that if the amount was not paid, legal proceeding against him might get started. Now, a question arises whether a hand written notice would constitute a valid notice? The Supreme Court in Pawan Kumar Ralli v. Maninder Singh Narula, held that hand-written notice containing all the ingredients would amount to valid notice. Another interesting question arose: whether in case of a company, notice should be served to each director of the company? Supreme Court in Krishna Textport and Capital Market v. Ila Aggrawal, AIR 2015 SCC, held that notice should be served to the company only.

After receiving notice, if the drawer does not make payment of the due amount within 15 days from receipt of notice then from the 16^th day cause of action for cheque bounce arises. If found guilty, the drawer can be punished for imprisonment upto 2 years or a fine which may extend to twice the amount of cheque or with both. Court fees in cheque bounce cases depend upon the amount which is outstanding. If the amount is less than 50000 then rs200 will be applied as court fee. If the amount is between 50000-200000 then court fees will be rs 500 and if the amount is more than 200000 then the court fees would be rs 1000.

Apart from criminal liability under section 138 Of NI Act, Criminal liability under section 417 and 420 of Indian Penal Code, 1860(hereinafter IPC) can also arise. Section 417 provides for punishment for cheating and section 420 IPC talks about Cheating and dishonestly inducing delivery of property. For example, if the person who has issued the cheque has already closed his bank account but still issues a cheque to some other person in exchange of payment of goods he has purchased from that person, in this case the person issuing the cheque is dishonest as he is aware of the fact that the cheque will get bounce. The person has deceived the other by doing so as he knew from the start about the consequences of the same. So, this may be an example where offense u/s 420 can be made out for dishonor of cheque. The offenses under Section 138 N.I. Act and Section 420 IPC are two different offenses altogether. Whether this offense or that offense is made out would depend on the facts of each case.

Apart from Criminal liability, civil liability can also arise by filing suit under Order 37 of Code of Civil Procedure, 1908(hereinafter CPC) which deals with summary suits. If the judgment is in favor of the payee, then the drawer should pay the amount mentioned in court order to the payee. Apart from this, civil suits for breach of trust can also be filed.

If more than one cheque received by the payee has been dishonored then a case can be filed in the same court for the cheque bounce cases. It even affects the credit score of the drawer which affects him in taking loans in future. Credit score is the past conduct of the person in paying money. Section 138 protects the payee from any illegal part of the drawer.