When a cheque received from the drawer of the cheque is presented to the bank for payment, and it gets rejected and returned by the bank unpaid, the cheque is said to be “bounced”. The drawer of the cheque is the person who signs the cheque for payment of the amount to the payee. The payee is the person who receives the cheque and presents it to the bank for receiving the payment of the amount mentioned in it.

There are several reasons where the cheque can bounce –

• wrong date,
• mismatch of the figures and words of the payment amount,
• mismatch of signature or damaged cheque.

But these are minor reasons for cheque bounce, and hence another cheque can be issued by the drawer rectifying the mistake in the cheque and pay the amount to the payee.

When the cheque is presented to the bank for payment, and it bounces, the bank will return the check along with a return memo stating the reason for the return. Where the bank rejects the cheque due to insufficient funds, then notice can be issued to the drawer, and legal action can be taken against him.

When the cheque bounces due to insufficient funds and is returned by the bank, the payee should send a legal notice to the drawer of the cheque asking to make the payment. Cheque bounce is an offence under Section 138 of the Negotiable Instruments Act, 1881 in India. The legal notice acts as an intimation to the drawer of the cheque that the amount mentioned in the cheque needs to be paid by him, or else legal action will be taken against him under the Negotiable Instruments Act in the respective court.

Legal Action For Cheque Bounce

When the cheque bounces, the first step is to send the cheque bounce notice to the drawer and request him to pay the amount. If he does not comply with the notice, then legal action can be taken against him. For initiating legal action and filing a suit in the court against the drawer, the following conditions must be satisfied-

• The payee should present the cheque within three months of the date of its issue.
• The bank should reject the cheque due to insufficient funds.
• The payee makes a demand for the payment of the cheque amount by issuing a cheque bounce notice in writing to the drawer by post.
• The cheque bounce notice must be sent within thirty days of the receipt of information of return of cheque by the bank.
• The drawer fails to pay the amount of cheque to the payee within fifteen days of receipt of the cheque bounce notice.

If the above conditions are satisfied, then legal proceedings can be initiated in the court within thirty days from the expiry of fifteen days time period for cheque amount payment after receipt of the cheque bounce notice by the drawer. The suit for cheque bounce can be initiated in the court of the city where the cheque was presented for payment. The case will be filed under Section 138 of the Act.

Section 138 Of The Negotiable Instruments Act

Section 138 of the Negotiable Instruments Act provides that cheque bounce for insufficient funds is an offence and punishable with imprisonment. It provides that where a person draws a cheque on an account maintained by him for the payment of money to another person, and it is returned by the bank unpaid because of insufficient funds to honour the cheque, the drawer of the cheque commits an offence.

The person must draw the cheque for discharge of any legally enforceable debt or liability. The cheque must be returned by the bank because the amount of money standing to the credit of the drawer’s account is insufficient or exceeds the amount arranged to be paid from the drawer’s account by an agreement made with the bank.

The drawer can be punished with imprisonment for a term not exceeding two years or a fine that can extend to twice the amount of the cheque, or both for the offence of cheque bounce.

Section 144 Of The Negotiable Instruments Act

Section 144 of the Negotiable Instruments Act provides that where cheque bounce has taken place by cheque issued by a company, then every person in charge and responsible for the conduct of the business of the company at the time the offence was committed is guilty of an offence. This section provides that the cheque bounce for insufficient funds is an offence when the drawer of the cheque is a company.

When the drawer of the bounced cheque is a company, every person in charge and responsible for conducting the business of the company and the company is guilty of the offence of cheque bounce and can be punished accordingly.

Where a cheque bounce offence is committed by a company, and it is proved that the offence was committed by the company with the consent, negligence or convenience of the director, secretary, manager or other officers of the company, such persons will be deemed guilty and liable to be punished accordingly.

Legal Notice Format Under Section 138 

Regd. AD/ UPC/ BY HAND
Dated————–
To
——————————–
———————————
Sub.:- Legal notice under Section 138 of the Negotiable Instrument Act.

Sir,

The cheque No.—————– dated—————- for an amount of ————drawn on the —————————————————————————branch, was issued by you in lieu of discharge of your financial liabilities to us.

The said cheque was presented for payment but the same has been returned by your bank with the endorsement ——————————–. The Bank has informed us through their cheque return memo dated———–.

You are now requested to make the payment of the above said amount immediately in accordance with the provisions of section 138 of Negotiable Instrument Act failing which we will initiate criminal proceedings against you as contemplated under the above said section.

This is for your information.
Yours
Name
Address

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