What if a cheque
bounces? Here's a guide to the legal recourse available to you
Bounced
cheques are one of the most common offences plaguing the financial world.
According to the Supreme Court, there
are over 40 lakh such pending cases in the country. A cheque can be dishonoured
for various reasons, the most common being insufficient funds in the account of
the person drawing the cheque, and a mismatch of signatures with the bank records. But what do you do if you land a
bad cheque? Here's a step-by-step guide to the legal recourse that is
available to you.
Filing a
criminal complaint
When a cheque bounces the first time, the bank issues a
'cheque return memo', stating the reasons for non-payment. The holder can
resubmit the cheque to the bank within six months of the date on it, if he
believes it will be honoured the second time.
The
other option would be to prosecute the defaulter legally. The first step is to
send a legal notice to the defaulter within 30 days of receiving the cheque return memo. All
the relevant facts of the case, including the nature of transaction, amount,
date of depositing the instrument in the bank, and subsequent date of
dishonouring, should be clearly mentioned in the notice. If the cheque issuer
fails to make a fresh payment within 30 days of receiving the notice, the payee
has the right to file a criminal complaint under Section 138 of the Negotiable
Instruments Act. However, the complaint should be registered in a magistrate's
court within a month of the expiry of the notice period.
If you
fail to file the complaint within this period, your suit will become
time-barred and, hence, not be entertained by the court unless you show
sufficient and reasonable cause for the delay. On receiving the complaint,
along with an affidavit and relevant paper trail, the court will issue summons
and hear the matter. If found guilty, the defaulter can be punished with a
prison term of two years and/or a fine, which can be as high as twice the
cheque amount.
However,
the defaulter can appeal to the sessions court within one month of the date of
judgement of the lower court. If a prolonged court battle is not acceptable to
both the parties, an out-of-court settlement can be attempted at any point.
"You can also file a case of cheating under Section 420 of the Indian
Penal Code, but the above recourse is preferred as it is faster and specially
dedicated to this particular offence (bounced cheques)," says Ravi Goenka,
advocate, Goenka Law Associates.
Filing a
civil suit
While
the above-mentioned process is helpful in taking a defaulter to task, it may
not always result in recovery of the pending dues. Hence, one can file a
separate civil suit for recovery of the cheque amount, along with the cost
borne and the lost interest.
This is
where a summary suit under Order 37 of the Code of Civil Procedure (1908) comes
in. A summary suit is different from an ordinary suit as it does not give the
accused the right to defend himself. Instead, the defendant has to procure
permission from the court to do so. However, remember that summary suits can be availed of
only in recovery matters, be it promissory notes, bills of exchange or cheques.
"Since a summary suit is a civil proceeding that does not have the force of
a criminal charge, the chances of imprisonment are remote in such
matters," says Goenka.
Exceptions
These
legal remedies are available only where pending debt or liability can be
clearly established. Hence, if a bounced cheque was issued as a donation or as
a gift, the holder cannot legally sue the defaulter.
Source :
Economic Times
