Cheque Bouncing: What you should know

• What is the law on Cheque Bouncing?

Section 138 of the Negotiable Instruments Act, 1881 (Act) deals with “Dishonour of Cheques”. This Act provides for Criminal Prosecution, in case a Cheque issued towards legally enforceable debt is bounced. The Act provides for i) Monetary Penalty: At the time of conviction of the accused (drawer of the Cheque), the Hon’ble Court may impose monetary penalty upto twice of the cheque amount, and ii) Imprisonment: The Hon’ble Court may also punish the accused with imprisonment upto two years.

• Is there any time limit to file a case of Cheque Bouncing?Following time limit is prescribed under the Act:

Presentation of Cheque: Payee shall deposit the Cheque with his banker within 3 months from the date of the cheque.

Dispatch of Demand Notice: On bouncing of the Cheque, the payee shall make the “demand” to the drawer for the payment of the said amount of money, within 30 Days of the receipt of Bank Return Memo.

Filing of Complaint: If the Drawer of the Cheque fails to make the payment of the Cheque amount, within 15 days from the receipt of notice, the payee shall file the Complaint with the Criminal Court within 1 month from the expiry of the demand period of 15 days.

Delay in filing the Complaint can be condoned if sufficient cause is shown in the complaint:

In one of the recent judgment delivered on May 8, 2019, the Division Bench of Hon’ble Justice Dr. Dhananjaya Y Chandrachud in Birendra Prasad Sah Vs The State of Bihar & Anr. (2019 SC) observed following law points:

1. Issuance of successive notices is permissible under the provisions of Sec 138 of NI Act having regard to the object of the legislations.
2. As per the proviso of Sec 138, the cognizance of the complaint may be taken by the Court after the prescribed period, if the complainant satisfies the court that he had sufficient cause for not making the complaint within the time.

• How an action of Cheque Bouncing different from Civil Recovery cases?

A Civil Recovery case is a Civil matter and the concerned Court can pass the decree only for repayment of the debt along with reasonable interest & cost. Whereas, in Complaint filed under Section 138, the Criminal Court may order the Accused to pay fine upto twice of the cheque amount along with imprisonment upto 2 years.

• Whether Cheque bouncing provisions are really effective?

Complaint under Section 138 is to be proceeded as a summary trial (i.e. fast track proceeding) and the Magistrate is bound to dispose-off the matter in a speedy manner. However, due to huge pendencies and delaying practices, these matters often get delayed. But, recently the Government of India, has made major changes in the law to make provisions more stringent. Further, due to fear of “jail”, the accused often settle the matter and make the payment before final disposal of the matter.

• How a person can save himself from false case of cheque bouncing?

The provisions of Section 138, being criminal in nature, have also been misused in order to harass innocent persons. In such a case, if there is no actual liability, then there are enough safeguards to protect the aggrieved person. The Higher Courts also come to the rescue of the innocent person.

• Whether there is any change (amendment) in the existing law on Cheque Bouncing?

The Govt. of India, has made major amendment in August 2018 that enables the Court to give interim (in-between) relief to the payee of the Cheque by ordering the drawer of the Cheque to pay upto 20% of the Cheque Amount as an immediate relief (Section 143A).

Further, as per the newly inserted Section 148 in the NI Act, in an Appeal by the drawer against the conviction under Section 138, the Appellate Court may order the Appellant to deposit such sum which shall be minimum of 20% of the fine or compensation awarded by the Trial Court.

In a recent judgment delivered by the two judges bench on May 29, 2019, delivered by Hon’ble Justice M R Shah in Surinder Singh Deswal Vs Virender Gandhi (2019 SC), the Court held that amendment in Section 148 for Appeal matters shall be with retrospective affect.

In case of any clarification on the captioned subject, or to know more please write to us at info@sigmalegal.in.

Sigma Legal Group