It is the internet age, of course. People now use internet banking and mobile banking for transferring funds. However, there is still a large section of the population that uses cheques. In fact, if you are going for a home loan or any other loan, you might see quite a bit of cheque exchanges. You might have to pay the processing fee also through the cheque mode. This being the case, what if the cheque issued to you or the cheque that you issued bounces? What will be the consequences? Here’s what you need to know.
What is a cheque?
Cheque is a negotiable instrument that instructs the bank to pay the specified amount from the issuer’s bank account to the person/person’s account mentioned on the cheque. The validity of a cheque is usually about three months.
What is a cheque bounce?
When the bank is unable to make payment as instructed on the cheque due to a number of reasons, it is considered a cheque bounce. These include:
- Insufficient funds in the cheque issuer’s account
- Signature mismatch
- Issuer of the cheque has become bankrupt
- Any overwriting on the cheque
- Difference between the amount written in words and in figures
- Wrong account number
Cheque bounces are considered a criminal offence in India. The bank will charge a penalty for cheque bounces. The issuer might also have to face criminal charges if the person to whom the cheque was issued pursues the case. Under the Negotiable Instruments Act, the person who is responsible for the offence will have to pay a fine and/or serve a jail term.
What if you deposit a cheque and it bounces?
In case you deposited a cheque and it bounced, you can get a cheque return memo from the bank. This will have the details regarding why the cheque got bounced. You can, of course, inform the cheque issuer that the cheque got bounced and ask them to issue another one. You can present the same cheque at the bank until three months from the time the cheque was issued. If the cheque issuer isn’t cooperative enough, you can send them a notice.
A demand notice or a letter demanding the amount that needs to be paid has to be sent within 30 days of the cheque bounce. This notice has to be sent to the issuer of the cheque and the issuer has to respond within the time specified in the notice. The time given to the issuer is usually 15 days. You could get the notice checked by a lawyer just to ensure that all the information that needs to be there is in the notice.
If the issuer isn’t making the payment within the time period specified in the notice, you can file a case in the magistrate court within 30 days of such non-receipt. If the timelines specified are not followed, the case could become time-barred and you might not be able to file a case against the issuer.
You need to submit all original documents for verification at the magistrate’s court. You also need to give a copy of the memo. The court will issue summon for the opposite party (cheque issuer) to appear in court. If the cheque issuer doesn’t appear in court then a warrant for arrest will be issued. The case is usually filed in the area where the cheque was presented.
Note that there are certain cases where a cheque bounce cannot be termed as an offence. Here are some of them.
- A cheque issued as a gift or donation.
- The cheque is no longer valid
- Cheque has material alterations
- Cheque has been fraudulently drawn
In case you have a bounced cheque in your hands, it is better to consult a lawyer. They can tell you how to recover the amount. Some can even arrange for an out-of-court settlement.