Author: Kritika Goyal, Amity Law School, Delhi (GGSIPU).
Cheque Bounce is a term used in common parlance to refer to issue of dishonour of cheque. We deal with cheque’s every day; it is one of the most widely used instruments for negotiation. What is even more common are the cases of Cheque Bounce and recovering the sum assured by the cheque can then become an unpleasant task. The events which follow a case of cheque bounce are governed by The Negotiable Instruments Act 1881.
A cheque is a bill of exchange. It is payable to the bearer on demand and can be drawn on a person’s bank account with the banker. It is said to be honoured when, upon being presented to the drawee bank and demanding the sum promised in the cheque, the bank gives the amount to the payee. And a cheque is said to be dishonoured if the bank refuses to pay the sum demanded by the person presenting the cheque and returns it unpaid.
Issue of Cheque Bounce is referred to as Dishonour of the cheque for insufficiency etc. of the fund in the account in The Negotiable Instrument Act 1881.
Section 138: Dishonour of cheque for insufficiency, etc., 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 provision of this Act, 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:
Provided that nothing contained in this section shall apply unless-d
(a) the cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
(b) the payee or the holder in due course. of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving notice, in writing, to
the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.
Explanation.-For the purposes of this section, “debt or other liability” means a legally enforceable debt or other liability.
Thus what triggers the offence under section 138(b) is
the payee receives information from the bank rejecting the demand for payment made and returning the cheque unpaid or dishonoured
notice is given ( in writing ) by the payee or holder in due course of the cheque as the case may be, making a demand for the payment of the said amount of money, to the drawer of the cheque. This notice is to be sent within 30 days of the receipt of the information from the bank
The drawer of the cheque fails to make the payment of the said amount of money to the payee or to the holder of the cheque in due course within 15 days from the receipt of the said notice.
The uphill task of recovery of money from the dishonoured cheque begins with furnishing a formal demand for the sum promised in the cheque by means of a Legal Notice.
Once the cheque has been dishonoured the holder of the cheque needs to send a legal notice to the drawer of the check, citing that the cheque has been so dishonoured and demanding the sum promised. There is no specific format of the notice to be sent under the section is prescribed by the legislature. What the legislature does prescribe is the time limit to send the notice; it has to be sent within 30 days of receipt of information from the bank.
There occurs no mandate to issue a cheque dishonour notice through a lawyer or legal counsel; however, the intricacies involved are mainly legal and require legal aptitude and insight.
The notice is to be served upon those persons to whom the holder of instrument in due course holds severally liable and to someone of several parties whom he seeks to make jointly liable. Thus, the notice may be given to:
- To a duly authorized agent of the person to who it is required.
- Where he is dead to the legal representative.
- To his assignee- when he is declared insolvent.
The law does not prescribe for a detailed and specific mode for delivery of notice. However, the most common and preferred method in practice is through Registered Post. The Hon’ble SC has even allowed delivery through Fax as an acceptable mode of delivery of a notice
Thus what appears to be important is sending the notice at the correct address and receipt of the same by the issuer of the cheque.
Use of electronic mail and other communication services is not expressly prohibited by the courts and a notice sent to the official email of the issuer of cheque can be said to be valid proof in writing according to section 4 of the Information Technology Act but such electronic forms for sending notice and the notice itself can always be disputed at the stage of evidence in the courts. It is advisable to not to rely solely on electronic forms and to be on safe side notice should also be sent through the Indian Postal Department as well.
Thus, while writing a notice for dishonour of cheque few things should be kept in mind:
- The cheque bounce notice should specifically mention the cheque details such as cheque number, amount, date along with the name and address of the branch of the bank where it has been drawn.
- The cheque bounce notice should also contain other relevant information like the nature of the liability against which it is was issued and the date of transaction etc.
- The amount for which the cheque was issued should also be mentioned both in words as well as in numbers in the cheque bounce notice specifically.
- It should be specially stated in the cheque bounce notice that the said cheque was issued in discharge of the legally enforceable right or the purpose for which the cheque was issued.
- It should also be specially mentioned that the said cheque has bounced due to the insufficiency of funds or the reasons as stated by the bank in their bank return memo.
- The demand for the amount within 15 days should be made vide the notice and it should be specifically mentioned in the notice in very clear terms.
- The date and place of issuance of notice should also be mentioned specifically.
- It should be specially mentioned that the notice is under Section 138 of the NI Act.
- The notice under Section 138 of Negotiable Instruments Act should contain the name and address of the person issuing the cheque. If the person has issued the said cheque in his personal capacity, then his name should be mentioned with clear address. If the person has signed the cheque as the authorized signatory of any organization, then his name with his designation be also specifically be mentioned and the organization which is liable to pay the amount should also be included as a party in the said notice.
- The reasons for the default of cheque should be clearly mentioned in the notice.
It is interesting to note that Section 27 of General Clauses Act, 1897 provides for the meaning of service by post. The provision gives rise to a presumption that service of notice has been affected when it is sent to the correct address by registered post.
The Effect a successfully sent notice is that when a notice for payment of dishonour of cheque is served to the payee, he is bound to repay the sum promised through instrument within 30 days of receipt of the notice from the holder of the cheque. If he fails to pay the amount as per the demand in the notice, criminal prosecution can be launched against him for offence of section 138 of the Negotiable Instrument Act 1881.
 Section 138 of the Negotiable Instrument Act 1881