Cheque Bounce Notice

Cheque Bounce Notice – An Overview

A Cheque bounce notice is a legal document sent by the payee to the drawer when the bank dishonours a cheque due to any one of the reasons, such as insufficient funds, signature mismatch, or any other discrepancy pointed out by the bank. The cheque bounce notice is managed according to Section 138 of the Negotiable Instruments Act, of 1881. This notice must be issued within 30 days of receiving the Cheque Return Memo from the bank.

The Cheque bounce notice under Section 138 notifies the drawer that the cheque has been dishonoured and that the stipulated amount payable as per the cheque must be paid within 15 days of receiving the notice. In case the drawer fails to adhere to the notice and comply, the payee is entitled to file a complaint against the drawer in court. The complaints, however, must be filed within one month after the expiry of the 15 days.

The cheque bounce notice gives the drawer one chance to settle the payment before a legal case or monetary penalty is processed. Cheque dishonour can attract a fine up to twice the amount mentioned in the cheque, while imprisonment can be up to two years. In some cases, the drawee is penalised with both.

How to Write a Cheque Bounce Notice?

Since a cheque dishonour notice holds legal consequences, it must comply with the legal framework and include all necessary elements to meet lawful requirements. Besides, it should communicate the message effectively to the drawer, explaining the implications of ignoring and breaching.

To learn how to write a cheque bounce notice, one must get a reference from an advocate or a legal professional. One must refer to a cheque bounce notice template before sending one to the drawer. Let us look at the essentials of how to write a cheque bounce notice under Section 138 below:

1. Sender's Details – A cheque dishonour notice must include the sender’s name, address and contact information, in this case, the drawer.
2. Recipient's Details A cheque bounce notice must include the recipient’s name, address, and contact information, which, in this case, is the payee.
3. Date - A cheque bounce notice must include the date on which the notice is being sent.
4. Subject - A cheque bounce notice must include a clear and concise subject line for effective communication, such as "Notice of Dishonour of Cheque.”
5. Details of Dishonoured Cheque - A cheque bounce notice must include details of the dishonoured cheque, such as the cheque number, date of issuance, bank name, branch name and the amount for which it was issued.
6. Statement of Dishonour A cheque bounce notice must visibly indicate that the cheque issued by the drawer has been dishonoured by the bank through a clear statement. The statement should also specify the exact reason given by the bank for dishonouring (e.g., insufficient funds or signature mismatch).
7. Demand for Payment – A cheque bounce notice must request payment of the cheque amount within 15 days of receiving the notice. This must be done as a warning settlement or face legal action under Section 138 thereafter.
8. Cheque Bounce Consequences – A cheque bounce notice must contain a statement informing the drawer of the legal consequences if he fails to settle the cheque amount within 15 days of the issuance of the notice under Section 138 of the Negotiable Instruments Act, 1881.
9. Signature - A cheque bounce notice must include the signature of the sender/payee alongside their name and designation (if applicable).

Download Cheque Bounce Notice Letter Format

Download the cheque bounce notice and its reply in easy-to-use PDF and Word formats.

Cheque Bounce Case Procedure

The cheque bounce law has laid down the cheque bounce case procedure that must be followed for instituting the suit in court. The procedure for a cheque bounce notice is as follows –

• Within 30 days of the bank's return of an unpaid cheque, the payee is required to send a cheque bounce notice to the drawer. This cheque bounce notice should be issued by registered mail and email to the drawer's address, business address, and place of employment.
• Important information including the amount of the cheque, the cause of the bounce, the date of the deposit, and the date the cheque was returned must all be included in the notice. In addition, it ought to demand that the drawer pay within 15 days and issue a notice that failure to do so could result in legal action.
• Under Section 138 of the Negotiable Instruments Act, the payee may bring a criminal complaint by filling the cheque dishonour complaint against the drawer if the latter refuses to pay the sum due within 15 days. Following the conclusion of the 15-day payment period, this needs to be completed within 30 days.
• The court in which the case should be filed should have the necessary financial and territorial authority. The complaint must be filed with the required documentation, including the Cheque Bounce Notice under Section 138.
• Under Section 138 of the Negotiable Instruments Act, the court may summon the drawer following the initial hearing if it accepts the matter.
• A defence must be presented in the respected court by the respondent (be it a person or an entity).

Implication of a Cheque Bounce

As soon as a cheque is dishonoured, the bank notifies the payee through a 'cheque return memo', which states the reason for the dishonour. The payee has the option to resubmit the same cheque, hoping that it will be honoured upon re-submission. However, if the cheque gets dishonoured again, it attracts legal action against the drawer. However, this condition is applicable only if the dishonoured cheque was issued to settle a debt or liability.

In such a case, the payee can exercise legal measures and follow the cheque bounce notice period measures against the drawer through a written notice that allows them to repay the cheque amount.

However, in case the drawer defaults in making the payment within 30 days of receiving the notice, the payee is then entitled to lodge a criminal complaint under Section 138 of the Negotiable Instruments Act. The payee can do this independently or through the power of attorney.

Compensation in case of Cheque Bounce

The court is entitled under Section 357 of the Code of Criminal Procedure, 1973 to compensate the payee for the drawer's defaults. However, no limit has been defined so far as compensation is concerned in respect to cheque bounce recovery. It is based on factors like the amount of cheque bounced, the reason for such bounce, frequency of the offence, circumstances, court’s discretion, etc.

Cheque Bounce Law when a Company defaults

As per the cheque bounce law, if a company is found to be liable for a bounced cheque, the person responsible for issuing the cheque on behalf of the company, as well as the company, are held guilty. A cheque bounce notice must be issued in a perfectly drafted cheque bounce notice template.

Misleading Allegations of Cheque Bounce

Various businesses demand a cheque to be submitted in place of security for dealings where one party offers a cheque to the other. However, the recipient may frequently deposit the cheque meant for security despite the transaction's completion, which results in a false accusation of cheque bounce.

In such cases, the onus lies on the issuer to prove that the cheque was meant as security and wasn’t issued to clear any debt or loan payment.

Cheque Bounce Penalty

The cheque bounce penalty includes:

1. Penalties and Imprisonment – A dishonoured cheque can invite a cheque bounce penalty for both the drawer and the payee. The penalties to be imposed in the offence of the cheque bounce are a fine up to twice the amount of the cheque, imprisonment for a term up to two years or both.
2. Revocation of Services – If the drawer defaults again and again, the bank may revoke privileges such as chequebook or even close the account.
3. Impact Credit Rating – Since institutions report defaults to credit bureaus, a bounced cheque can negatively impact the drawer's credit history.
4. Bank’s Expenses – The court may even ask the defendant to pay the bank a certain sum as a fine for its loss in time, effort, and convenience.

Fees for a Cheque Bounce Recovery Case

The fees charged by professionals for handling cheque bounce recovery cases can vary significantly based on several factors related to the case. However, the minimum fee starts from Rs 5,000, but it may increase depending on the complexity of the case, the experience and expertise of professionals, the duration of the legal proceedings, and various factors.

Cheque Bounce Validity Period

Once the complaint has been raised by the payee within a month from the date of the offence, the courts acknowledge it under Section 138.

However, post an amendment in 2002, the cheque bounce validity period has been amended and the payee can now raise the complaint even after the expiry of the one month, provided the complainant has reasonable grounds to prove the delay. The complaint must be made to a court equal to or higher than a Metropolitan Magistrate or a Judicial Magistrate of the first class.

Cheque Bounce Case Time Limit

There is no set cheque bounce case time limit. However, the duration can range from 6 months to 1-2 years, depending on various factors. The cheque bounce legal action can be initiated only after the payee has sent a cheque dishonour notice to the drawer within the cheque bounce notice period.

Section 138 of the Negotiable Instrument Act, 1881

If a cheque bounces due to insufficient funds, the drawer commits an offence under Section 138 of the Negotiable Instrument Act. This section mandates that if a cheque is returned unpaid because the account lacks sufficient funds, the drawer will face penalties, including up to two years of imprisonment or a fine up to twice the cheque amount.

Section 144 of the Negotiable Instrument Act, 1881

When a company issues a bouncing cheque, Section 144 holds the company and its responsible officers accountable. This means directors and managers can face legal consequences if they are allowed or were negligent in preventing the offence. If the cheque bounces happened with their consent or negligence, they can be punished.

Section 141 of the Negotiable Instrument Act, 1881

If a company commits an offence under Section 138, then the company and every person responsible for the company’s business at the time of the offence are considered guilty. These individuals can be prosecuted and punished accordingly. However, individuals will not be held liable if they can prove that they were unaware of the offence or had taken all reasonable steps to prevent it.

Suppose it shows that the offence is committed with the consent or due to negligence of any director, manager, company secretary or other officer of the company. In that case, those individuals will also be deemed guilty and subject to legal action and punishment.

What are the Circumstances Leading to Cheque Bounce?

Cheque bounce arises for various reasons. Let us discuss the reasons and situations leading to cheque bounce, which in turn invite legal and monetary penalties.

 Various situations that result in cheque bounce are as follows:

1. Insufficient Account Balance – If the drawer’s account runs short of adequate funds for which the cheque has been issued, it leads to rejection from the bank, where the cheque is returned to the payee. This, in turn, leads to cheque bounce.   
2. Stop Payment Instruction – The cheque gets dishonoured if its issuer issues an instruction to stop the payment through ‘stop payment’.
3. Payee Name– If the name of the payee is either missing or lacks clarity on the cheque, it leads to the cheque getting dishonoured.
4. Account Number – The cheque also gets dishonoured if the account number mentioned on the cheque is either unclear or missing.
5. Case of Insolvency – The cheque also gets dishonoured if the bank is informed about the death, lunacy or insolvency status of the drawer.
6. Data Mismatch—The cheque is dishonoured if the amount mentioned in the figures does not match the other.
7. Bank Issue – The cheque also gets dishonoured when the cheque isn’t presented to the bank on which it was drawn.
8. Signature Mismatch – The cheque gets dishonoured in case the signature of the drawer does not match the specimen signature registered with the bank.
9. Alterations & Overwriting – In case the bank finds alterations or overwriting on the cheque, it becomes a ground for being dishonoured.
10. Cheque Bounce Validity Period – Expired cheques or cheques that have passed the validity are automatically dishonoured. Cheques issued by the drawer must be presented for payment within three months.
11. Damaged Cheque Damaged or disfigured cheques where details are not visible or that have marks or stains when presented to the bank get dishonoured.
12. Frozen Account – A cheque issued by an account frozen by the government or by court order leads to the cheque getting dishonoured.

Contact Corpbiz to draft the cheque return notice and frame cheque bounce charges on the drawer. Our experts can reduce the cheque bounce case time limit to a shorter time frame. Besides this, you can reach out to our expert lawyers for replying to legal notices.

How does Corpbiz Assist with the Cheque Bounce Case Procedure?

With a network of 200+ lawyers, the team of Corpbiz has successfully assisted in resolving 1000+ cheque bounce cases. We provide clients with a well-drafted cheque bounce notice template for future cheque dishonour complaints. Given below are the ways through which Corpbiz can extend support in cheque bounce cases-

Pre-litigation Services

• Case Assessment and Consultation
• Demand Notice Drafting
• Negotiation and Settlement Facilitation

Litigation Services

• Complaint Drafting and Filing
• Court Representation
• Evidence Collection and Management

Post-judgment Services

• Execution of Court Order
• Appeal Management

Additional Services

• Legal Compliance Guidance
• Cheque Bounce Notice Template
• Cheque Return Notice
• Client Communication and Support

Cheque Bounce Recovery