What are the charges in case of a cheque bounce?

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A cheque (check) becomes a bounced cheque when, on being presented to the bank, it is returned by the bank due to there being a defect in it. A cheque may bounce due to: a. Insufficient funds b. The amount mentioned in the cheque exceeding the amount which has been arranged to be drawn from the account by virtue of a prior arrangement.
A common occurence in the business world, a bounced can have terrible consequences for the drawee, should the drawer wish to press charges.

Cheque Bounce Notice

In case you have deposited a cheque that has bounced, send a letter (a demand notice) to the party that wrote the cheque (the drawer), threatening to initiate proceedings under the Negotiable Instruments Act (NI Act) if the amount due is not paid.

The threat of prosecution usually results in prompt settlement (if the drawer is an individual, the proceedings would happen under Section 138 of the NI Act. In case of a company, its managing director can be personally prosecuted under Section 141). The demand notice must be sent within 30 days from the date you found out that the cheque issued to you bounced. Its purpose is to demand payment and inform the issuer that he or she will be prosecuted if payment is not made within 15 days.

It should contain the following information:
a. Statement that you presented the cheque within its period of validity.
b. Statement of debt or legally enforceable liability.
c. Information about the reason of dishonour of cheque (check the memo of the bank returning the cheque for this).
d. Calling upon the drawer to pay the amount due.
e. Statement that you are giving the drawer 15 days to pay up or you will initiate legal action.

A lawyer is not required to send this notice but you may get it vetted by a lawyer for a few hundred rupees. The notice often becomes the point of fierce battle when a dispute does reach trial.

The proof of service of the notice is very important – you can courier it if pressed for time but also send a copy through registered post or speed post. If not pressed for time, just the speed post is enough. If it is the 15th day and no payment has still been received, you have to file a complaint within 30 days before a magistrate in any of the following places: where the cheque was drawn; where the cheque was presented; where the cheque was returned by the bank; and where the demand notice was served by you.

If during the validity of the cheque, after the demand notice has been sent, the drawer asks you to present the cheque again and it is yet again dishonoured, the drawer’s time limit under the demand notice does not increase. The dishonour of a cheque due to stopped payment is also covered under Section 138 of the NI Act. You cannot take legal recourse if the cheque was issued as a gift, donation, or any other obligation that is not legally enforceable or if the validity of cheque is over (issued more than three months ago).

Civil and Criminal Charges

In case you do not file criminal charges against the issuer, he/she can get away with only a small fine paid to the bank for a bounced cheque. However, if you file a civil or criminal case against you, the NI Act, 1881 would apply.
Section 138 of the Act states that any bounced cheque is punishable under the Act and can lead to up to two years of imprisonment, a monetary refund or both.

Moreover, according to RBI guidelines, banks can stop issuing cheque book facilities to any customer booked for a bounced cheque. The minimum stipulated rate of offence is set as at least four times on cheques valued over Rs.1 crore.

Bank Penalty

If a cheque bounces due to insufficient funds or any other technical reason, such as signature mismatch, both the defaulter and the payee are charged by their respective banks.

The penalty charges for cheque outward return are close to Rs. 300 for most banks, while charges for cheque inward return are about Rs. 100.

The penalty charges vary from one bank to another, and are different for different account types. Premium accounts usually have higher penalty charges.

Impact on CIBIL Score

A bounced cheque can dent the financial credit history of a drawee. Even a single bounce can impact your CIBIL score irreparably to an extent that you can possibly be denied a loan in the future.

A CIBIL score is critical for your business since it can invariably affect your equation with the investors or the banks when you approach them for your loan.

The best way to keep your CIBIL score healthy is to ensure your cheques are never dishonoured and that you have significantly more funds than the minimum balance in your account after cheque encashment.

There are, however, instances, when the cheque may have bounced due to:
Spelling errors;
Mistakes in dates;
Overwriting;
Signature mismatch;
Closed bank account;
Low funds in the account (it will be a gross irresponsibility to issue a cheque if funds are low);
Disparity in the amount written in figure and words, and so on.

Under such instances, as soon as the Cheque Return Memo is sent to the drawee, they can reissue the same within 30 days of intimation, to avoid criminal charges or any of the above offences.

Any payments, not made within the stipulated time period (which is usually 15 days), will be deemed as an offence and the payee can take you to the court to start criminal proceedings against the drawee of the cheque.

The court gives a 30-day notice period for the complaints to be filed, in case fresh payments were not received within the stipulated time.

There are various reasons for a cheque to bounce, and whatever they may be, it is essential that one need to take care while issuing cheques.

It is better to be safe than sorry. Hence, ensure that the cheques issued are written legibility and with clarity. And, in circumstances where the cheque bounce notice is issued, revert back with payments within the stipulated time.

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