For a lot of day-to- day transactions, a cheque may be used by a person for the payment to the other party. A Cheque is a negotiable instrument. It is a document that orders a bank to pay a specific amount of money from the holder’s account to the person whose name has been mentioned on the cheque. The person who is writing the cheque is known as the drawer. A cheque can be viewed as a type of bill of exchange; it came into use mainly to avoid the need of carrying large amounts of money. A cheque can be issued by and in favor of both natural persons as well as legal entities.
A cheque is said to have bounced or been dishonored when the purpose of it gets defeated which means that the amount that is mentioned in it cannot be transferred to the person in whose favor the cheque was made. A cheque may be dishonored due to a number of reasons which may include unavailability of sufficient funds or technical reasons such as the mismatch in signature.
In case a cheque is bounced, certain remedies are available to the receiver of the cheque.
These remedies may be civil or criminal in nature. When a cheque becomes dishonored, the bank issues a Cheque Return Memo. This is a document that states the exact reasons for the non- payment of the amount mentioned in the cheque. At the option of the holder, they are given a chance to resubmit the cheque to the bank within the period of three months of the date mentioned on it.
Civil Remedy
Usually, a civil suit when filed in the case of a dishonor of cheque is for the recovery of the money. According to the Bombay High Court, such plea is maintainable in the court of law. While a criminal suit pushes the defaulter to be punished, it doesn’t necessarily result in the recovery of the dues. Therefore, two simultaneous pleas are maintainable. Apart from cases of gift or donation, these remedies are available to the victim in all the cases of pending debt or liability.
The complainant can file a complaint in the city where he resides or where the cheque was earlier deposited. This is done to make it easier for the victim in the duration of the legal recourse.
Before 1988, an act of dishonor of cheque could not be criminalized. This was done to put an end to the frequent practice of cheques being dishonored. This posed a serious threat to trade where the transfer of the property did not happen immediately. However, to say that the criminalization of the act has put an end to it would be slightly overboard.
Criminal Remedy
By nature, according to the Negotiable Instrument Act (Section 138) the bouncing of cheque is a criminal offence in India. This applies only to cases where the cheque bounces because of insufficient funds and not due to any other technical default on the part of the drawer.
The first step towards the remedy is a written notice to the Drawer. This is done within 30 days from the date of Cheque Return Memo. This notice gives the option of making payment within 15 days of receiving such notice. If, after the period of 15 days, the drawer fails to comply with his liability to make the payment, a criminal suit may be initiated by complaint in the Court if either the Judicial Magistrate of First Class or the Metropolitan magistrate. The complaint is to be accompanied with an affidavit. On checking the documents and confirmed the summons will be served to the drawer to appear before the court for the summary trial.
The drawer also has the opportunity to present his defense in the summary trial before the Magistrate.
The magistrate arrives at a final decision after hearing both the sides.
Punishment
If the drawer is found guilty of the offence under the act, he may be liable to a sentence of imprisonment of up to 2 years or fine of rupees five thousand or both.
The bank from which the cheque was issued has the right to restrain him from accessing his account and availing the cheque book facility.