Home Speak to a lawyer Meet a lawyer Flat fee services About Blog Careers Contact Us Terms & Conditions Privacy Policy Legal Topics
Blog
Recent Post

Get Legato App on your mobile.

The Negotiable Instrument Act 1881
  • By: admin
  • Date: 09 Apr 2020
  • Dishonour of Cheques
  • Comments:
  • Views:244
  • Likes:

A cheque is a bill of exchange which is payable on demand. There are two parties in a transaction: The person who issues the cheque is known as the drawer, whereas the person under whose favour the cheque is issued is known as the drawee. According to section 13 of the Negotiable Instruments Act 1881, a negotiable instrument means a promissory note, bill of exchange or cheque. The cheques are governed under the Negotiable Instruments Act 1881. A cheque bounce is termed as the cheque that cannot be processed because of the insufficient funds that are available in an individual’s bank account. The drawee issues a cheque bounce notice/demand notice to the drawer. The Cheque bounce notice states that if the amount due is not paid within the prescribed time, then the drawee will initiate the legal proceedings under section 138 of the Negotiable Instruments Act 1881 against the drawer.

Following are the provisions that are mentioned under Section 138, 141 and 142 of the Negotiable Instrument Act 1881.

Section 138 of the Negotiable Instrument Act 1881

Section 138 of the Negotiable Instrument Act 1881 states the provision relating to the dishonour of cheque for insufficiency of funds in the bank account. If there is any cheque issued by the drawer to the drawee to pay any amount and the cheque is returned/dishonoured by the bank because of the insufficient amount in the bank account to honour the cheque. The cheque is also dishonoured if it exceeds the amount that has been arranged to be paid from that bank account (by an agreement made with the bank).

Section 138 of the Negotiable Instrument Act 1881 shall not be applicable if the cheque has been presented to the bank after the period of its validity (after a period of 3 months). Section 138 of the Negotiable Instrument Act 1881 shall be applicable if the payee makes a demand for the payment of the money by giving a cheque bounce notice to the drawer within a period of 30 days from the receipt of the information from the bank regarding dishonour of cheque. This section shall also apply if the drawer fails to make a payment within 15 days from the receipt of cheque bounce notice.

Section 141 of the Negotiable Instrument Act 1881

Section 141 of the Negotiable Instrument Act 1881 states the provision relating to the offences that are committed by the company under section 138. In case if the offence is committed by any person who was in charge of the company and was responsible for the conduct of the business, then the person and also the company would be deemed guilty of the offence. However, if he proves that he had exercised due diligence in order to prevent such offence or if the offence was committed without his knowledge, then he would not be deemed guilty of an offence under section 138. In case if the offence is committed by a director/manager/secretary/officer of the company (with the consent or connivance or due to neglect), then they will be prosecuted and punished. Hence, there is a vicarious liability of the officers of the company. A person who is nominated as a director of the company is holding any office or employment in the Central Government or State Government, or a financial corporation owned by the Central or State Government shall not be liable for the prosecution under this chapter.

Section 142 of the Negotiable Instrument Act 1881

Section 142 of the Negotiable Instrument Act 1881 states the provision relating to the Cognizance of offences. Following are the provisions mentioned under this section:

  • The Court shall take cognizance of the offence punishable under section 138 only when the drawee makes a complaint in writing.
  • The complaint must be made within a period of 30 days from the expiry of the cheque bounce notice period (15 days).
  • The offences punishable under section 138 shall be tried by the Metropolitan Magistrate or a Judicial Magistrate of the First Class and not by any other inferior court.
  • A complaint can be filed by a manager or any other person who is authorised by the company. Also, they can represent the company during the course of legal proceedings before the Court.
  • The Magistrate must look whether the ingredients of offence is fulfilledor not, before taking cognizance of the offence.
  • The cause of action for filing a complaint under section 138 would arise after the expiry of 15 days from the cheque bounce notice and if the drawer fails to pay the amount within such period.
  • The drawee cannot make a complaint after the period of 30 days from the expiry of the cheque bounce notice period (15 days) as it is time-barred.
  • The drawee must allege that the cheque was dishonoured due to the insufficient fund in the bank account, even if the payment was stopped by the bank.
  • The limitation period will begin to run once the cause of action has arisen. The limitation period could not be stopped by presenting new cheque so as to have the fresh cause of action and fresh limitation period.
  • When the cheque is issued in favour of the company, a complaint under section 138 can be filed by the manager or any other officer who is authorized by the company.
  • Section 142 of the Negotiable Instrument Act 1881 does not prohibit or excludes the complaints that are being made by the Power of Attorney or Agents of the drawee.

Conclusion

In India, the Cheque bounce is considered to be one of the serious offences. It is also punishable with imprisonment or a fine mentioned under section 138 of the Negotiable Instruments Act 1881. The term of imprisonment may extend upto two years, and the fine may extend to twice the amount of the cheque drawn. There can also be a case where both imprisonment and fine will be given as a punishment for cheque bouncing. Hence, an individual can file a criminal case under section 138 of the Negotiable Instrument Act 1881, and it can also file a Summary suit under Order 37 of the Criminal Procedure Code 1908.

Read More

Cheque Bounce Notice

By: Adv. Kishan Dutt Kalaskar Dishonour of Cheques 19 May 2020

A cheque is a bill of exchange which is payable on demand. There are two parties in a transaction, the person who issues the cheque is known as the drawer, whereas the person under whose favour the cheque is issued is known as the drawee. A cheque bounce is a situation in which the cheque cannot be processed because of the insufficient funds that are available in an individual’s bank account. There are many reasons which can lead to a cheque bounce. To overcome such scenarios, the drawee issues a cheque bounce notice or a demand notice to the drawer. The Cheque bounce notice states that if the amount due is not paid within the prescribed time, then the drawee will initiate legal proceedings under section 138 of the Negotiable Instruments Act 1881against the drawer.

According to section 13 of the Negotiable Instruments Act 1881, a negotiable instrument means a bill of exchange, promissory note, or a cheque. The cheques are governed under the Negotiable Instruments Act 1881. Section 138 of the Negotiable Instrument Act 1881 states the provision relating to the dishonour of cheque for insufficiency of funds in the bank account. If there is any cheque issued by the drawer to the drawee to pay any amount and the cheque is returned/dishonoured by the bank because of the insufficient amount in the bank accounts to honour the cheque. The cheque is also dishonoured if it exceeds the amount that has been arranged to be paid from that bank account (by an agreement made with the bank). Hence, an individual can file a criminal case under section 138 of the Negotiable Instrument Act 1881, and he can also file a Summary suit under Order 37 of the Civil Procedure Code 1908 There are obvious limitations to the applicability of this section, that said cheque needs to be submitted to the banker before six months of issue, and that the payee if he cheque sends a notice to the drawer of the same within 30 days of being intimated by the bank for insufficiency of funds, either available or disposable.

Cheque bounce cases are the most prominent among all proceeding s arising out of the Negotiable Instrument Act, with about 40 lakh cases pending according to the Law Commission 213th Report. In the same report, the Commission proposed a fast track court system to deal with cheque bounce cases to ease the burden on civil courts, plaintiff/ complainants.

Reasons

Following are the reasons behind a cheque bounce:

  • A wrong date mentioned on the cheque

    It has been observed that the drawer of the cheque mentions a wrong date in the cheque which results in cheque bounce. Not only the wrong date but if the drawer mentions a date which is more than three months old, then also the cheque is dishonoured by the bank. Moreover, if the cheque is postdated and the drawee deposits the cheque earlier than the date, it results in cheque bounce. To avoid cheque bouncing drawer must mention the correct date in the cheque. Refer Javed Ahmad v Syed AzmathullaHussaini1993 CriLJ 2359, where the Andhra High Court held that when a person is accepting a postdated cheque that might exceed the limitations discussed herein, the same would be deemed done with ‘open eyes’ and allow the defendant to claim the same in defence.

  • Signature is mismatched

    The bank dishonours the cheque if the drawer’s signature is mismatched. It has been observed that many times people tend to forget their signature and end up by putting a wrong signature on the cheque. If the signature does not match with the bank’s record, it results in cheque bounce. To avoid such situations, the signature of the drawer must match his bank record. This matter has been set to rest in M/s LaxmiDyechem v State of Gujarat and Ors. (2012) 13 SCC 375 here the court held that Sec. 138 could be extended to include all such situations where cheques have been dishonoured, despite the section only referring to two scenarios. Thereby envisaging even those situations where the cheque was returned because of a mismatched or unrecognizable signature.

  • Funds in the drawer’s bank account

    The bank dishonours the cheque if there is any shortage/lack of funds in the drawer’s bank account from which the cheque has been issued. In case of insufficient funds in the bank account, the bank will stop the payment. It will also levy a penalty to both drawer and drawee. Insufficient funds are one of the main reasons for cheque bounce cases. To avoid cheque bouncing, the drawer must ensure that there is sufficient balance in his bank account before issuing any cheque. This extends even to situations where the drawer of cheques pauses or prevents payments to be made from the account, or when the drawer specifically notices the payee not to present the cheque: Held thusly by the supreme court in Electronics Trade & Technology Development Corporation v Indian Technologists and Engineers (P) Ltd. (1996) 2 SCC 739.

  • Overwriting on the cheque

    A bank has the authority to dishonour the cheque if the drawer has scribbled or has done overwriting on the cheque. The cheques must be kept in good condition. If the bank finds that the cheque is in a bad condition or is damaged and the details mentioned in the cheque are not clearly/properly visible, then it results in cheque bounce. To avoid the cheque bouncing, one must keep the cheques in good condition.

  • The different amount mentioned in words and numbers sections

    The bank dishonours the cheque if there is an unusual amount mentioned in the words and numbers in the cheque. The amounts specified in words section must be the same with the amount mentioned under numbers section. This common mistake can lead to a cheque bounce. To avoid the cheque bouncing, one must write the same amount in both the sections (words and numbers).

Legal Action

  • The first step is to issue a cheque bounce notice. The drawee issues a cheque bounce notice to the drawer within a period of 30 days from the cheque dishonour. The notice must consist of information relating to the nature of the transaction, the amount specified, the date on which the cheque is deposited, the date on which the cheque is dishonoured, the reason behind cheque bounce and to request the payment of the amount (that was dishonoured by the bank) within a period of 15 days from the receipt of such notice. The cheque bounce notice must also include the details of the drawer, and it should specify that the cheque was presented within the validity period, it should also specify that the cheque was not given as a loan or a gift but for discharging the debt (Sec. 139 of NI Act makes thus presumption). If the drawer makes the payment after receiving the cheque bounce notice, then there is no need to file a case against the drawer. Legal notice once sent and dishonoured, the same shall, under the provisions of this act does not bring cognizable offence, until a complaint has been made within a month of the original period of 15 days as specified under Sec. 138 (c).
  • It is essential for any legal action under the act that notice for bouncing of a cheque needs to be served, and subsequently rejected, or ignored: Dalma Cement Ltd. v Galaxy Traders & Agency Ltd. (2001) 6 SCC  463.
  • Further noticed, that while the jurisdiction shall usually be at the place of dishonour, a pre-arranged jurisdiction can be agreed upon, and the same cannot be changed or modified by actions of dishonour at a later point by the bank. In Madan v Videocon Industries Ltd.(2013) 3 BC 225it was held that since the agreement between parties set jurisdiction was set at Aurangabad, notice cannot be sent at the branch of service of the cheque: Delhi.
  • Further, it was held in M/s Harmann Electronics v National Panasonic India Pvt. Ltd.  (2009) 1 SCC 729 that the place of the notice shall in no way determine the jurisdiction of the court. Jurisdiction shall either be agreed upon or at the place of dishonour.
  • The notice needs to be accurate in claims made, a held in Rahul builders v Arihant Fertilizers (2008) 1 SCC 703, here the notice was held defective and lacking in instituting cause of action since the amount mentioned was different from that on the cheque.
  • Despite these above decisions, the payee may adduce additional claims other than the original cheque amount in the event that interest payment is sought: SumanSethi v Ajay Kumar Churiwala1998 C. Cr. LR (Cal) 106 held in the Calcutta HC.
  • A legal notice as discussed shall be presented to the drawer of a cheque upon dishonour, and the same shall prevent the payee from presenting the same cheque to the bank again, Vijay Kumar v Yashpal Singh and Anr. (2003) 4 SCC 417.
  • The next step is to file a case if the drawer does not make a payment within the prescribed time. If there is no payment within a period of 15 days by the drawer, then the drawee can file a criminal case within a period of 30 days from the expiry of the cheque bounce notice period (15 days). The case can be filed only in the city where the drawer presented the cheque to the drawee.
  • If the drawer is found guilty, then the penal provision mentioned under section 138 of the Negotiable Instrument Act 1881will be applied by the Court. The punishment prescribed under the section is as follows: Either a sentence of imprisonment extending up to two years and/ or a fine extending to twice the value of the original cheque.

Conclusion

Despite the above discussion, it should be kept in mind that, since the passing of the Negotiable Instruments Act (Amendment) Bill 2017, the drawee is required to pay interim compensation amounting to 20% of the cheque amount, which may be returned depending in the outcome of the case (Sec. 143 A introduced under the act).

Section 143A of the Negotiable Instruments Act 1881 states the provision relating to the Interim compensation to the drawee for the inconvenience that has been caused due to the cheque dishonour. Hence, cheque bounce is one of the common problems which is still prevalent in India. To avoid the cheque bounce problem, one must keep in mind the reasons behind cheque bounce so that the cases of cheque bouncing is avoided. It is highly advisable to appoint a professional to draft a cheque bounce notice, or legal consequences may be attracted.

Read More
Comments:
Views: 356
Likes:

Types of Dishonour of Cheques

By: admin Dishonour of Cheques 09 Apr 2020

A cheque is a bill of exchange which is payable on demand. There are two parties in a transaction: The person who issues the cheque is known as the drawer, whereas the person under whose favour the cheque is issued is known as the drawee. A cheque bounce is termed as the cheque that cannot be processed because of the insufficient funds that are available in an individual’s bank account. When cheques are bounced, and they cannot be processed further, such a situation is known as “Dishonour of Cheque”. As the name suggests, this simply means the cheques are not honoured by the bank. There are many reasons which can lead to the dishonour of cheque. There are many legalities which can be used when a cheque of a party is dishonoured. Legal proceedings under section 138 of the Negotiable Instruments Act 1881 can be initiated against the drawer.

According to section 13 of the Negotiable Instruments Act 1881, a negotiable instrument means a promissory note, bill of exchange or cheque. The cheques are governed under the Negotiable Instruments Act 1881. Section 138 of the Negotiable Instrument Act 1881 states the provision relating to the dishonour of cheque for insufficiency of funds in the bank account. If there is any cheque issued by the drawer to the drawee to pay any amount and the cheque is returned/dishonoured by the bank because of the insufficient amount in the bank account to honour the cheque. The cheque is also dishonoured if it exceeds the amount that has been arranged to be paid from that bank account (by an agreement made with the bank). Hence, an individual can file a criminal case under section 138 of the Negotiable Instrument Act 1881, and it can also file a Summary suit under Order 37 of the Criminal Procedure Code 1908.

 

Types of Dishonoured Cheques

There are mainly three types of cheque dishonour according to which cheques are dishonoured by the Indian banks. They are:

  1. Dishonour of negotiable instrument by non-acceptance:

A bill of exchange/cheque is dishonoured by non-acceptance when the drawees, or one of several drawees, fail to accept the bill or the cheque upon duly required to accept the bill or a case where the presentment is excused, and the bill is not accepted.

  1. Dishonour of cheque by non-payment:

A bill of exchange, promissory note, or cheque is considered to be dishonoured by non-payment when the maker of the cheque, drawee of the cheque, or the acceptor of the bill commits default in payment when the party is duly required to pay the bill.

  1. Dishonour of cheque due to insufficient funds in the account:

When the cheques are dishonoured for the lack of money in the account of the person who draws the cheque for another party is known as Dishonour of Cheque due to insufficient funds in the account. In such circumstances, the drawer is also held criminally liable for this offence and therefore can be punished with imprisonment for a term, which may extend to one year, or a fine can also be imposed on the person of double the amount of the cheque, or with both.

 

Discharge of Cheque Dishonour

A party which is attached to a negotiable instrument is discharged in the following ways:

  • By payments from the drawer
  • When a qualified acceptance is taken
  • If the payment is made in the due course of the cheque
  • By cancellation of the name of a party who is attached to the cheque/instrument
  • Specific alterations can be made
  • Law can interfere and make the required arrangements
  • The drawee can be allowed to accept the cheque within 48 hours
  • A presenter can remain absent for acceptance of a promissory note
  • By delay in presenting a cheque/bill of exchange for necessary payment

 

Conclusion

In India, Dishonour of Cheque is considered as one of the serious offences. It is also punishable with imprisonment or a fine mentioned under section 138 of the Negotiable Instruments Act 1881. The term of imprisonment may extend upto two years, and the fine may extend to twice the amount of the cheque drawn. There can also be a situation where both imprisonment and fine will be given as a punishment for dishonour.

Section 143A of the Negotiable Instruments Act 1881 states the provision relating to the Interim compensation to the drawee for the inconvenience that has been caused due to the cheque dishonour. Therefore, cheque dishonour is one of the most common problems which is still prevalent in India. Problems related to the dishonour of cheque can be avoided if one keeps and takes all the necessary steps required to avoid the reasons that lead to the dishonour of cheques.

Read More
Comments:
Views: 418
Likes:

Endorsement under Negotiable Instrument Act

By: admin Dishonour of Cheques 17 Feb 2020

When the holder or the maker of negotiable instrument signs on the face, back or on the slip of paper annexed to it, or signs for the same purpose a stamped paper intends to be completed as an instrument which is negotiable, the maker or the holder is said to endorse the instrument. It can be endorsed by the Drawer, Maker, Holder or Payee. A person making endorsement is called ‘Endorser’ and the person to whom endorsement is made called ‘Endorsee’.

 

The endorsement is the mode of negotiating the Negotiable Instrument. The word endorsement is derived from the Latin term ‘en’ means ‘upon’ and ‘dorsum’, ‘the back’. The endorsement may be even made on the slip of the paper attached to it. The attached slip of paper is called as ‘Allonge’.

 

Essentials of a valid Endorsement:

  • The Endorsement should be written on the instrument itself and must be signed by the endorser. The signature of the endorser is sufficient. The endorsement written on an allonge is considered as written on the instrument.
  • The holder or maker must sign it, a stranger can not endorse it.
  • The endorsement must be on the entire instrument. A partial endorsement does not operate as a negotiation of the instrument. An endorsement which purports to transfer the endorsee a part of the payable amount or which implies to transfer the instrument to two or more endorsees exclusively is known as a partial endorsement.
  • A negotiable instrument payable to two or more payees or endorsees who are not partners, all must endorse the instrument unless the one endorsee has an authority to endorse for others.
  • If the payee or endorsee has wrongly designated or has made a mistake in his name, he should sign in the same way as in instrument.
  • When two or more endorsements are made on an instrument, and each is deemed to have been made in the order that appears on the instrument until the contrary is provided.
  • An endorsement may be made in particular or blank. It may also be restrictive.
  • The signature should be in ink and not by pencil or rubber stamp.
  • No particular words are necessary to develop a contractual relationship between endorser and endorsee.

 

Kinds of Endorsement

According to the Negotiable Instrument Act, 1881 endorsement can be of the following types:

 

The endorsement in blank or general endorsement:

In case of blank endorsement, the payee or endorser signs his name, the payee or endorser does not specify an endorsee.

 

Full or Special Endorsement:

When the payee or endorser specifies the name of the person to whom or to whose order the instrument is paid, this type of endorsement is called as a full or special endorsement.

 

Restrictive Endorsement:

When an endorsement is restricted or prohibited for further negotiation of a negotiable instrument is known as restrictive Endorsement. The endorsement may be by the express words, restrict or exclude the right to pay or negotiate the endorsee or to receive its contents for the endorser or for some other specified person.

 

Partial Endorsement:

When only a part of the amount of instrument is endorsed, then it is known as a partial endorsement. An endorsement which transfers the instrument to two or more endorsees separately is not valid.

 

Conditional Endorsement:

If the endorser of a negotiable instrument makes his liability or the right of endorsee to receive the due amount, by express words in the endorsement, dependent on happening of the specific event, although such event may never happen, this type of endorsement is called as a conditional endorsement.

He may make his liability on the conditional happening of a particular event. He will not be liable to that particular holder if the event specified does not take place to the instrument even before the particular event takes place.

 

Unconditional Endorsement:

An unconditional endorsement followed by its unconditional delivery has the effect of transferring the property to the endorsee. The endorsee has the right to negotiate the instrument further to anyone he prefers, or he wants to transfer.

Read More
Comments:
Views: 632
Likes:

Noting And Protest

By: admin Dishonour of Cheques 12 Feb 2020

The term Noting and Protest is mentioned under Chapter IX of the Negotiable Instrument Act, 1881. Under Section 99 to Section 104 A, the act has explained the meaning of Noting and protesting along with the content and Notice of protest, protest of foreign bills, protest for non-payment after dishonour by non-acceptance. It also has mention condition when the noting is equivalent to protest.

Noting - Noting is a convenient mode of authenticating the fact that a bill or note has been dishonoured. When non- acceptance or non-payment have dishonoured a note or a bill, the holder causes that such dishonour to be noted by a Notary public. It is a minute recorded by a notary public on the instrument dishonoured.

When an instrument is dishonoured, and to note the same, it is taken to Notary public. The notary public presents it again for acceptance or payment, as the case may be. If drawee still refuses to accept or pay the bill noted, then a minute is prepared containing the date, reason for dishonour and the facts on the instrument. It means that the Notary Public notes the cause of non- acceptance with date and fee on the promissory note or bill of exchange. It is necessary that noting must be made in a reasonable time after dishonour. Noting is not essential for the cheque and are optional for inland bills.

Advantages Of Noting

  • Wherever protest within particular time is compulsory under the law; it is sufficient if at least noting has been made within such time
  • A bill of exchange may be accepted for the honour after it has been noted
  • A bill of exchange may be paid for the honour after it has been noted.

 

Protest - A protest is a formal record of dishonour signed by the notary public, and copy of the bill is also included in it. It is necessary to maintain the holders right against the drawer and the endorser. After the instrument is dishonoured, the holder may note down the cause, but also it is necessary to be certified by a Notary Public stating that the bill is dishonoured. Such a certificate is called as 'Protest'.

In the case of Inland Bills, the process of noting and protesting is not necessary. But Section 104 states that every foreign bill of exchange should be protested for dishonour when the law requires a protest of the country where the bill has drawn. The benefit of noting and protesting is that it constitutes prima facie evidence in the Court mentioning the fact why the instrument has been dishonoured. Under Section 119, it is made mandatory that the court is bound to recognize the protest, whereas the court may or may not recognize the noting.

Section 104 A has been introduced to clarify the position of any bill or document which can be protested any time after taking the legal action against the party. Therefore, where a document has been noted within the time required by law, the legal proceeding cannot be initiated on account of protest not having been made.

Document For Proceeding When The Document Is Dishonoured

  1. The instrument or a literal transcript of the instrument.
  2. Name of the person, against whom and for whom the instrument has been protested.
  3. The fact and reason for such dishonour.
  4. The Place and time and place dishonour.
  5. The signature of the Notary Public.
  6. In event of acceptance or payment, name of the person by whom, or the person for whom and how, such approval or payment was offered and effected.

Protest For Better Security

When the acceptor of a bill becomes insolvent before maturity then the holder may demand better security from the acceptor through a Notary Public, within a reasonable time.

If acceptor refuses to give better security, it can get certified by the notary by the process of noting. The certificate issued is known as a protest for better security.

Read More
Comments:
Views: 383
Likes:

Things to be kept in mind - Dishonor of Cheque

By: admin Dishonour of Cheques 30 Jul 2019

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:

  1. 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.
  2. 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.
  3. The date should be put carefully as cheques will stay active for three months from the date you have put on the cheque.
  4. Don’t overwrite the Cheque.
  5. Maintain a proper note of cheques issued and their respective date of presentation at the bank.
  6. Ensure sufficient amount a day before the submission.
  7. 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:

  1. The cheque is issued towards the discharge of liability
  2. The cheque must be presented within six months of the liability period.
  3. The cheque must return due to insufficient funds or exceeds arrangement.
  4. The dishonour of cheque is informed to the drawer within 30 days by notice.
  5. 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.

Read More
Comments:
Views: 427
Likes:

Reasons for Dishonour of Cheques

By: admin Dishonour of Cheques 27 Apr 2019

A banker can stop the payment of a customer and can dishonour the cheque. The following are the main reasons and circumstances in which the bank can dishonour the Cheque of the customers.

We often issue Cheque to make payment as it is a convenient and less risky to make payment through Cheque. You write the date, the amount in figures and words, name of the party to whom payment needs to transfer along with signatures. It appears to be easy, but we often make some common mistakes due to which Cheque is dishonoured by the bank or return unpaid.

Let's find some common reasons or mistakes to be avoided while writing or issuing Cheque. When Cheque is given for payment, the bank should make the payment to the payee as specified in the Cheque if everything is in order. In case the bank refuses to make payment of amount then Cheque is said to be dishonoured. Bank returns the Cheque to Payee with a memo specifying the reason for dishonour.

Before we go through the reasons for the Dishonour of Cheque, let's see what needs to write Cheque;
• Name of the person to whom payment is to be done, i.e. Payee Name
• The amount in Figures and Words 
• Date of depositing the cheque
• Drawee Signature

If one has written everything as mentioned above in order, then your cheque is dishonoured due to any one of the following reason.

Funds Insufficient/Exceeds Arrangement – Prevalent reason due to which bank return the cheque unpaid. Sometimes, you write the cheque against salary which is to be credited on a particular date. In case salary is not credited or get late then the Cheque is presented for payment, Bank will return it unpaid. So, confirm or maintain bank balance in your account before issuing. In the case of the overdraft account, the cheque is dishonoured with the reason "Exceeds Arrangement".

The amount in words and figures – Bank dishonour the Cheque if amount written in words and numbers are different. In such a case, the bank can terminate the payment of the cheque and dishonour it.

• Payee Name – In case the payee name is absent then the bank can dishonour the Cheque with the reason "Payee Name Required".

• Signature Differ – Sometimes you forget your signature, which you did while opening the account. The Bank will dishonour the Cheque if the (drawer) signature doesn't match with specimen available in a bank record.

• Alterations/Overwriting – The Bank will not honour the Cheque if you overwrote/altered something on it. It is advisable to avoid overwriting and alternation.

Post Dated Cheque – When date written on Cheque is yet to come is called post dated Cheque. Suppose, Date written on Cheque is 04th May 2019, But you present it for payment on 1st May 2019. Bank will dishonour the Cheque and return it unpaid as the bank cannot honour it before the date mentioned on Cheque.

• Instrument Out-Dated/Stale Cheque – A Cheque is valid for three months from the date written on Cheque. If a Cheque is presented after three months of the date mentioned, then it is called Stale Cheque. Bank cannot make the payment of Stale Cheque and return it unpaid with the reason "Stale Cheque or Instrument".

Payment Stopped by Drawer – Mostly drawer stop the payment in case if the cheque is lost or stolen. In this case, Bank dishonours the Cheque and return it unpaid with the reason that payment is stopped by the drawer.

• Dormant / Inoperative Account – If the account is dormant or inoperative, then the bank can dishonour the Cheque.

• Account Number – If the account number is not mentioned in Cheque clearly or it is absent. Then bank dishonours the Cheque.

• For No Funds – In case there is no credit balance in customer's account, but he has drawn a cheque to the bank, the bank must dishonour the cheque. 

• Typed Cheque – As a general rule if the customer draws a typed Cheque because it is easily altered, then the bank can refuse to make payment.

Same Branch – The same bank branch can make payment of a cheque where the customer has his account. If a customer presents a Cheque for payment at a branch where he has no account, the bank will not make payment of the Cheque.

• Alteration Or Change – when it is seen that the customer has altered the figures, date, name, etc. after drawing the Cheque, but has not legally attested it, the banker will dishonour the cheque.

• Joint Account – Some customers have a joint account, and the signature of all the persons is needed on the Cheque, and if the Cheque has not been signed by all jointly, the bank will not make the payment.

• When the Payment Is Stopped – In case the drawer asks the bank to stop payment and not to pay for a cheque issued, in that case, the Cheque will not be honoured by the bank.

For Frozen Account – In case the government or court order that the account of a particular person has to be frozen, in such case, the bank will dishonour all the cheques bearing that account number.

Read More
Comments:
Views: 3498
Likes: