Question and Answers on Cheque Bounce
Question: What Legal action can be taken against the cheque bounce/ dishonor of cheque?
Answer: The payee/holder of the cheque can file criminal case under section 138 of Negotiable Instrument Act against the drawer of the cheque and simultaneously can also file a civil case for recovery.
Question: What will be the procedure for filing of criminal case against the drawer of the cheque?
Answer: Firstly the holder of the cheque/payee has to send a demand notice within 30 days, after receiving the information from its bank regarding the cheque bounce, to the drawer of the cheque either individually or through lawyer asking to make the payment of the cheque amount within 15 days from the receipt of the intimation/demand notice with respect to dishonor of the cheque. Secondly if the drawer fails to make the payment within the said 15 days from the receipt of the intimation/demand notice with respect to dishonor of the cheque, the holder of the cheque/payee can move onto filing a criminal complaint in the court.
Question: Whether cheque bounce is a criminal offence?
Answer: Yes, Cheque Bounce is a criminal offence.
Question: Whether cheque bounce is punishable offence?
Answer: Yes, cheque bounce is punishable offence and the drawer/signatory of the cheque can be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both.
Question: Whether criminal and civil case can be filed simultaneously?
Answer: Yes, criminal and civil case can be filed simultaneously.
Question: Where a cheque has been given only as a security and not as repayment of a loan, whether an offence under Section 138 of Negotiable Instruments Act is made out for dishonour of cheque when this cheque is dishonoured?
Answer: This question came before the Hon’ble Supreme Court of India for consideration “WHETHER A POST-DATED CHEQUE GIVEN AS “SECURITY” AND MENTIONED IN THE LOAN AGREEMENT IS COVERED BY SECTION – 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 OR NOT?”.
The following observations were made:-
The agreement recorded that post-dated cheques towards payment of installment of loan (principal and interest) were given by way of security.
Contention of the appellant in support of his case was that the cheques were given by way of security as mentioned in the agreement and that on the date the cheques were issued, no debt or liability was due. Thus, dishonour of post-dated cheques given by way of security did not fall under Section 138 of the Act.
The Hon’ble Judges of the Supreme Court of India are of the view that the question whether a post-dated cheque is for “discharge of debt or liability” depends on the nature of the transaction. If on the date of the cheque liability or debt exists or the amount has become legally recoverable, the Section is attracted and not otherwise. Though the word “security” is used in the agreement but the moment the loan was disbursed and installments have fallen due on the date of the cheque as per the agreement, dishonour of such cheques would fall under Section 138 of the Act.
Question: Whether A cheque issued from the account of guarantor as a security also would fall within the purview of Section 138 Of NI Act or not?
Answer: The security cheques also would fall within the purview of the Section 138 of NI Act and a person could not escape his liability, as such, when there is existence of debt on the date of presentation of the cheque and the security cheques issued are dishonoured, the accused would be liable under Section 138 of NI Act.
Question: In what circumstances cheque bounce does not amount to an offence?
Answer: The circumstances in which a cheque bounce does not amount to an offence are numerous in number. Some of the instances are:
- When the cheque is given as an advance.
- When the cheque is given as a security.
- The disparity in amount stated in words and figures.
- Alternations in cheques require attestation by the drawer.
- If the cheque is found mutilated.
- When a cheque is issued to a charitable trust as a gift or donation.
Question: In what circumstances cheque bounce amounts to an offence?
Answer: Firstly when the cheque is issued against a legal liability. Secondly when the cheque in question is dishonored with the reasons either insufficiency of funds, account closed, payment stopped by the drawer and similar other reasons. Thirdly despite receiving of the demand notice the drawer of the cheque fails to make the payment within 15 days from the receipt of the notice.
Question: Whether the Court can close the proceedings of cheque bounce and discharge the accused on satisfaction that the cheque amount with assessed costs and interest is paid?
Answer: Yes, as per the principle laid down by the Hon’ble Supreme Court of India in the matter of M/s Meters and Instruments Pvt. Ltd. Versus Kanchan Mehta decided on 5.10.2017 where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Negotiable Instrument Act read with Section 258 Criminal Procedure Code.