What is Cheque?
It is a negotiable instrument, which is defined by section 6 of the Negotiable instruments Act as, "a bill of exchange that is drawn on a banker and not expressed to be payable otherwise than on-demand, and the electronic image of a truncated cheque and a cheque in the electronic form.”
Specific terms one must know:
Drawer: Author of the cheque is called ‘drawer’,
Payee: Person in whose favour the cheque is drawn is called ‘payee’,
Drawee: Bank who is directed to pay the amount is known as ‘drawee.'
Dishonour of Cheque: Dishonour of cheque is a situation in which the bank refuses to pay the amount of cheque to the payee. When the cheque is dishonoured, the drawee bank immediately issues a ‘Cheque Return Memo’ to the payee banker naming the reasons for dishonour. The payee banker then provides the dishonoured cheque and the memo and to the payee. After that, the payee has the option to resubmit the cheque within three months of the date mentioned on the cheque after fulfilling the reason for the dishonour of cheque.
Moreover, the payee has to give notice to the drawer within thirty days from the date of receiving the Cheque Return Memo. This notice should say that the amount of the cheque will be paid to the payee within fifteen days from the day the drawer receives the notice.
Though, if the drawer fails to make a fresh payment within thirty days of receiving the notice, the payee has the right to initiate a legal proceeding against the defaulter as per Section 138 of the Negotiable Instruments Act.
If you don't want to dishonour your cheques and to maintain credit scores, you must follow specific criteria:
- Write your cheque with a single pen and write without making any mistakes in filling the amount or payee name. In case you have committed any error then alter it and don't forget to put your specimen signature near the alteration and at the bottom of the cheque too.
- Write the amount in words and figure cleanly, and they should be the same. If that is not the case, the amount written in the figure will prevail.
- The date should be put carefully as cheques will stay active for three months from the date you have put on the cheque.
- Don’t overwrite the Cheque.
- Maintain a proper note of cheques issued and their respective date of presentation at the bank.
- Ensure sufficient amount a day before the submission.
- While receiving new cheques from the bank, make sure they have registered your cheque in the system.
Proceedings for the dishonour of cheque u/s 138 of NI act can be initiated in the following cases:
- The cheque is issued towards the discharge of liability
- The cheque must be presented within six months of the liability period.
- The cheque must return due to insufficient funds or exceeds arrangement.
- The dishonour of cheque is informed to the drawer within 30 days by notice.
- The drawer of the cheque must fail to pay within 15 days from receipt of the notice.
Punishment and Penalty
On receipt of the complaint, along with an affidavit and relevant documents, the court will summons the defaulter to hear the matter. If the defaulter is found guilty, he/ she can be punished with a penalty which can be double the amount of the cheque or imprisonment extending up to two years, or with both.
In case the drawer makes payment of the cheque amount within fifteen days from the receipt of the notice, then drawer doesn't commit any offence. Or else, the payee may proceed to initiate a complaint in the Magistrate Court having proper jurisdiction within a month from the date prescribed in the notice.