Dishonour of Cheque - Remedies
Akshaya Lal, Damodaram Sanjivayya National Law University, Visakhapatnam
CHEQUE DISHONOUR IN INDIA
To understand the meaning of a cheque, the meaning of a “bill of exchange” shall be known first. A bill of exchange is a promissory note which can be known as a written order to a person requiring them to make a specific payment to the person addressed to.
Cheque can be understood as an order to the bank to pay the specific amount from the drawer’s account to the payee.
The unsuccessful processing of a cheque is usually termed as cheque bounce or dishonor of cheque. There are several reasons why a cheque has been dishonored or bounced:
● Insufficient funds
● Incorrect date of the cheque
● Mismatch of signatures
● Amount in words and figures do not match
● Disfigured or damaged cheque
● Overwriting or scribbling on the cheque
When a cheque is dishonoured-, the bank gives a “return memo” which states the reason for which the cheque bounced. The bank gives 3 months from the date of dishonour to encash the cheque again. If the payee brings back the cheque again in the stipulated time, the matter is finished then and there.
Cheque bounce becomes an offence when the dishonour happens because of “insufficiency of funds” in the account.
The question arises as to what remedies do the payee have if the cheque is dishonoured?
The 213th Law Commission report has stated that over 38 lakh cheque bounce cases are pending in courts and over 7.6 lakh cases are pending at the magisterial level in Delhi only. Looking at the number of pending cases, a normal person does not always prefer going to court or seeking legal remedies for it may take years for justice to be delivered.
The first step without involving any kind of legal intricacies would be to talk to the other party and sort out the matter themselves only. As the bank gives the time of 3 months to bring back the cheque from the date of dishonour, if can be solved through mutual talks and the payee is presented with the cheque again, the matter is closed then and there.
But, what if the other party denies to comply or does not respond?
The first step would be to send a notice and the notice can be sent from an individual level without the involvement of a lawyer. A legal notice is not the requirement, but simply a notice can be sent to the other party informing them about the dishonour of the cheque along with the return memo issued by the bank. The notice should clearly state that the payment shall be made within 15 days from the date of receipt of the notice sent.
Sending a notice through individual level, firstly saves you from dragging the matter legally and secondly it saves you from spending further to the legal fees, which of course the payee or the concerned party has to pay.
In case of non payment inspite of giving a notice, the concerned party has the option of then dragging the matter to the court if they think that it would be worth it. The legal procedure is dealt further in the article.
But if the person is not ready to go to court for the non payment what options does he have?
In this case, if there has been any contract between the party and the contract has an arbitration clause, the concerned person has all the rights to invoke the arbitration clause and come to a common consensus by way of alternative dispute mechanisms.
The Indian courts are of the view that, even though dishonour of cheque is a criminal offence, the main objective of making it a criminal offence is recovery of the said amount. So, as long as the amount is recovered from the opposite party or the defaulter the Indian courts do not like to interfere.
In a recent case, the Delhi High Court (Dayawati vs Yogesh Kumar) passed a landmark judgement and stated that the alternate dispute mechanisms shall be promoted to resolve unnecessary cases and also to ignore unnecessary litigation.
Apart from Arbitration, the method of Mediation in which both the parties settle to a common ground is also promoted in India and a person who does not want to opt for litigation may opt for mediation to settle the case out of court.
In case the aggrieved person want to go to court, the procedure would be:
In case of non payment of the amount, the payee has an option to move to court against the drawer of the cheque. Section 138 of the Negotiable Instruments Act, 1881 allows the same.
The aggrieved person has to see that these ingredients were fulfilled before filing the case against the drawer:
1. Drawing of the cheque
2. Presentation of the cheque to the bank
3. Return of cheque unpaid to the payee
4. Issuance of notice demanding the amount
5. Failure of the drawer to make payment within 15 days of such notice
If the again stated ingredients are fulfilled, the payee can successfully file a case of dishonour of cheque against the drawer of the cheque.
The complaint shall be filed to the Judicial Magistrate First Class with the original documents such as the cheque, copy of the notice, return memo. After the verification of the documents, the opposite party would be called to present their side of the case. If the drawer of the cheque is found guilty, he can be imprisoned for a term which may be extended to 2 years or with fine which may amount to twice the amount of the cheque, or both.
The aggrieved person also has the option to file a “civil case” at the same time for the recovery of the amount.
What if the drawer of the cheque is an organisation or a company?
In this case, you have the same options as above in settling the matter outside the court. But law also has provisions if you want to take a legal action against an organization or a company in case of a cheque bounce.
The persons to whom the liability of a cheque bounce can be extended to in a company are:
1. The company itself,
2. People incharge and responsible for the business of the company,
3. Any other person due to whose neglect the company has committed the offence.
In the earlier case, when the drawer was an individual, only he can be prosecuted in law for a cheque dishonour. Whereas, in the present case of the drawer being a company it postulates that a person, in charge of and responsible to the company, in the context of the business of the company, shall also be deemed guilty of the offence. The drawer can be a company, a firm or an association of individuals, but only those directors, partners, or officers can be held responsible for the offence punishable under law who are responsible for the conduct of its business.
1. Negotiable Instruments Act, 1881.
2. Indian Penal Code, 1860.