The issue of cheque bounce is a headache in India in terms of finance and business. A dishonour of a cheque takes place when a bank fails to honour a cheque because of a shortage of funds or otherwise. Section 138 of the Negotiable Instruments Act, 1881, makes cheque bouncing a criminal offence. As a victim or an accused in a cheque bounce case, understanding the stages involved in the legal process is crucial to ensure timely redressal and compliance.
This blog provides a step-by-step legal guide to the proceedings of a cheque bounce case in India, including a schedule of events and key legal steps to be taken.
What is a Cheque Bounce?
Bounce of cheques is an instance where the bank refuses to honor a cheque because:
- Insufficient funds
- Signature mismatch
- Validity of the cheque expired
- Account closure
- Stop payment orders
Section 138 of the Negotiable Instruments Act, 1881 states that where a cheque (issued to discharge a legal obligation) is dishonoured, the holder has the right to lodge a criminal offence against the issuer of the cheque.
Legal Remedies Available for Cheque Bounce Case
A remedy for dishonour of a cheque by law contains:
- Sending a notice to the drawer
- Section 138 Filing a criminal complaint
- They would ask to take the defaulter to court and pay a fine and also be sent to jail
Step-by-Step Stages of Cheque Bounce Case in India
1. Presentation of Cheque
The process begins when the payee hands over the cheque to the bank to be encashed before it exceeds the validity of the cheque ( which usually is 3 months after the date of issue). In case the cheque is dishonoured a cheque return memo is issued by the bank giving the reason of non-payment.
2. Cheque Retrieved Order
This is a critical memo from the bank in pursuing further legal action. The memo indicates that the cheque was returned unpaid due to insufficient funds or a closed account, among other reasons. Retain the cheque, together with the memo, as evidence.
3. Legal Notice Issuance
Section 138-NI of the NI Act requires the payee to serve a legal notice on the drawer within a period of 30 days after receiving the return memo.
The notice should:
- Mention the amount on the cheque
- State the cause of absence of honour
- Demand payment within 15 days
This notification is a required procedure, and the same must be provided through a registered post or through courier, along with proof of delivery.
4. Utilization of 15-Day Waiting Time
Following the transmission of the legal notice, the drawer is given a 15-day deadline to effect the payment. In case the drawer settles the dues for this period, it can be settled amicably, and no other legal course of action is required.
5. Criminal Complaint Filing
In case the payee does not receive payment within 15 days, an indictable criminal complaint can be instituted by him within 30 days of expiry of the notice period, in the Magistrate Court.
The complaint should entail:
- Copy of the bounced cheque
- Cheque returned memo
- Imprint copy
- Receiver acknowledgement through the post
This triggers the section 138 proceedings.
6. Court Takes Cognizance
The Magistrate will check the complaint and papers. On accepting, the court will cognize the offence and possibly issue a summons to the accused to appear before the court.
7. Notice and Court Appearance
The accused then has to face the Magistrate after the issuance of a summons. In case the accused is not present in the court, it can give either a bailable or a non-bailable warrant.
In the hearing, both parties give their case and evidence.
8. Pleading Stage
The person accused can:
- Admit the guilt, for which the court can punish with a penalty or a prison sentence
- Plead not guilty when the case is then referred to trial
In case the accused does not agree to a guilty plea, the statement of the complainant shall be noted by the court, and the trial process shall commence.
9. Cross-Examination and Evidence
The complaint forwards his/her proofs along with the cheque, return memo, legal notice, and postal evidence.
It is a right of the accused to cross-examine the complainant.
Thereafter, the defence can present his/her evidence and witnesses.
10. Concluding Reasons and Verdict
When all pieces of evidence have been documented and arguments made, the case is then decided upon by the court.
In case the guilty is held by the courts, Section 138 punishment entails:
- A sentence of imprisonment of up to 2 years
- Fine up to twice the sum of the cheque or both
In most instances, the courts order the drawer to pay the amount of money in the cheque plus interest and legal fees as a form of compensation.
11. Appeal
In case any party does not feel contented with the judgment, he or she can appeal to the Sessions Court within 30 days of the judgment given.
Timeframe of Cheque Bounce Case
| Legal Stage | Timeline |
| Presenting the cheque | Within 3 months of issue |
| Sending legal notice | Within 30 days of bounce |
| Waiting period for reply | 15 days from notice |
| Filing of criminal complaint | Within 30 days of expiry of 15-day period |
| Court trial and verdict | Varies (6 months to 2 years approx.) |
Common Mistakes to Avoid
- No observation of timelines of notice and complaint
- Presenting a case out of a claim lodging a suit out of a claim
- Making a stale cheque (more than 3 months)
- Failure to keep the original cheque and return memo
- Using an inappropriate and unclear legal notice
Position of Cheque Bounce Lawyers
It is essential that the client hire a well-experienced cheque bounce lawyer to obtain justice. An attorney has the ability to:
- Write a legal notice in the right form
- Make sure the complaint is well filed
- Present your case to the Magistrate
- Settlement or appeal guide
Conclusion
The procedure of dealing with cheque bounce cases in India is quite strict with reference to the Negotiable Instruments Act, 1881. To prosecute or defend a case amicably, it is of paramount importance to act promptly, document successfully, and seek legal advice. The legal procedures of a cheque bounce case, though, are the same whether you are the victim demanding justice or you are the person accused in the case; knowledge of the cheque bounce case can guide you to face the situation with self-dependence.
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