Oct 01,2020 | 3 min read

Cheque Bouncing: Causes & Solutions

A cheque is an unconditional order addressed to a banker, signed by a person who has deposited money with a banker, demanding a certain amount of money to be paid on request only by order of that person or by order of the instrument bearer.

(Or)

A cheque is a document that orders a bank to pay the individual on whose behalf the cheque has been issued a certain sum of money. The cheque is used to make a safe and convenient payment.

The cheque is a financial and a negotiable instrument which can be transferred to another party by simply endorsing it.

The four main items on a cheque are: -

  • Drawer, the person or entity who makes the cheque
  • Payee, the recipient of the money
  • Drawee, the bank or other financial institution where the cheque can be presented for payment
  • Amount, the currency amount

The cheque was introduced in India by the Bank of Hindustan. In 1881, the Negotiable Instruments Act was enacted in India. The NI Act has established a legal structure for non-cash paper payment instruments in India. The Calcutta Clearing Banks' Association, which at that time was the largest bankers' association, implemented the clearing-house in 1938.

Till 1st April 2012, cheques in India were valid for six months from the date of its issue.    After that, the Reserve Bank of India reduced its validity to three months from the date of issue.

Cheques continue to be used till date in different settings, and business transactions on a large scale do take place through the medium of cheques. However, in recent years "cheque bouncing" have become very common. Though cheques continue to be a reliable instrument of payment, cheques have been dishonoured in recent years. Cheque bouncing has been termed a legal offence within the country to protect the interests of the holder. The Negotiable Instruments Act, 1881 is the legal instrument which states that cheque bouncing is a crime. Section 138 of the Negotiable Instruments Act is applicable for the dishonour of the cheque. However, if the drawer makes payment of the cheque amount within fifteen days from the date of receipt of the notice, then the drawer does not commit any offence. If the drawer does not pay until the expiry of the 15 days' time, the payee has the right to file a complaint in the court of law.

Causes of Cheque Bouncing

When Does Cheque Bouncing Occur? | Law Corner

There are several reasons for cheque bouncing: -

1. Insufficient Funds or Exceeds Arrangements: If your account lacked funds when the cheque was issued, then the cheque may bounce. If the amount held in the account is less than the stipulated amount, then the cheque can bounce in such a situation.

2. Date Mentioned on Cheques: It is a vital part of the cheque, and any discrepancy on that front could lead to the cheque being bounced.

3. Signature Mismatch & Overwriting: This is a very common reason for bouncing cheques in India. Disfigured cheques with overwriting are not entertained.

4. Drawer Stopped Payment: This is also a common reason for cheque bouncing.

Possible Solutions to Cheque Bouncing

Bloomberg Quint has enthusiastically opined that "a commercial problem needs a commercial solution" because this topic passionately divides the masses and classes alike.  In lieu of this fact, a perfect solution to this enduring problem would require skill and ingenuity. Legal remedies are available to all. For example, a complaint has to be filed within thirty days from the receipt of a reply to the cheque bouncing notice or from the lapse of 15 days of statutory notice. It needs to be recalled in this context that a cheque expires three months after its issuance.

Interestingly, cheque bouncing offences are common but tend to drag on in courts for years. Earlier, filing a civil suit was the only available option. Still, since these courts are unable to resolve the issue within a specified time frame, new amendments were made to the Negotiable Instruments Act in the year 1989.  With the insertion of Chapter XVII in the Negotiable Instruments Act, 1881, the person issuing the dishonoured cheque can be punished with imprisonment up to 2 years or with fine, which may extend to twice the amount of the cheque or with both. The legislative intent behind this move was to ensure faith in the efficacy of banking operations and improve the credibility of cheques as a mode of payment. It was to provide a strong criminal remedy to deter people from issuing cheques that will be eventually dishonoured and also to ensure compensation to the complainant.

The newly inserted S. 143-A also provides for interim compensation to the complainant.  Time is an essential factor here that often dissuades parties from moving ahead with the legal options available. Now the courts' enquiring complaint under Negotiable Instrument Act was made into Fast Track Courts to expedite the process of trial.

Furthermore, Section 139 of the Negotiable Instruments Act, 1881 requires that, unless it is proven otherwise, it is to be assumed that the issuer of a cheque received the cheque of nature referred to in Section 138 of the Act above for the discharge, in whole or in part, of any liability or liability whatsoever. This assumption is refutable by the accused by providing convincing proof that there was no debt or liability.

Conclusion

Now the Government of India is proposed to decriminalize the offences under the Negotiable Instruments Act 1881 to boost the economy of the country which has gone to a downfall in the recent covid-19 pandemic. If it is done so, then the flood gate for civil disputes will be opened, and it would be another burden upon the courts in India.   

 


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