In the commercial world, negotiable instruments are considered to be convenient modes for the transfer of money. To protect the interests of the drawee, it was necessary to make Dishonour of cheques a punishable offence. Therefore, Section 138 to 142 were inserted to make the drawer liable for bouncing of cheques due to insufficient funds with safeguards to protect the honest drawer. The essential ingredients under Section 138 of the Negotiable Instruments Act (hereinafter referred to as “the Act”) were states by the Supreme Court in Kusum Ingots and Alloys Ltd v. Pennar Peterson Securities Ltd. [(2000) 2 SCC 745] which are as follows:
a. The cheque must be drawn on the account maintained by the drawee.
b. The cheque was presented to the bank within six months from the date of validity (3 months as per new RBI guidelines) or when it was drawn.
c. The cheque is returned by the bank unpaid due to insufficient funds.
d. The drawer has failed to make payment of the mentioned amount within 15 days of receipt of the notice.
Recovery Procedure in Section 138 cases
Recovery from a cheque bounce case gives the affected party to file a civil as well as a criminal suit against the accused. Here, the drawer has three months to resubmit the cheque, after which legal measures can be taken.
The drawee of a cheque can take the following legal measures:
- Demand Notice
The first step should be sending a demand notice or letter to the drawer within 30 days from when the cheque was presented and returned by the bank. The major objective of this notice is to demand money from the drawer and warn him of the legal consequences in case of failure of payment. The notice must state the amount mentioned on the cheque to the drawer and must also give 15 days to make the payment. It should also state that if the amount is not paid within the stipulated time mentioned, legal action will be taken against the drawer as prescribed under the Negotiable Instruments Act, 1881.
- Drafting a Complaint
A complaint is drafted when the drawer has failed to reply to the legal notice within 15 days or has been delaying payment unnecessarily, or has refused to pay in the future. The complaint has to be filed in the court having the local limits of jurisdiction within 30 days from the date of receipt of the notice.
The Supreme Court stated in the case of K. Bhaskaran v. Shankaran that the following places could have the jurisdiction considering the ingredients of Section 138:
- Where the cheque is drawn.
- Where payment had to be made.
- Where the cheque is presented for payment
- Where the cheque is dishonoured.
- Where notice is served to the drawer.
- Relevant Documents
All the important documents must be ready with the drawee before registering the complaint.
- Photocopies of the cheque returned by the bank, memo, copy of the legal notice for demand sent to the drawer, and the acknowledgement slips/ receipts
- Written complaint
- Letter of oath
- Structure of Payment
It is necessary to pay court fees for every litigation process. Therefore for filing a cheque bounce complaint, the complainant has to pay the court fees that are different from case to case and solely depend upon the amount of cheque against which the complaint has been filed.
- Memo of Advocate(MoA)
The MoA authorizes the advocate to appear for his client before the court, also known as the Vakalatnama, which must be presented on the first date of filing the complaint with the appropriate signatures. After the court accepts the case, every document is cross-checked by the JMIC, and the period of limitation to file the suit is validated.
- Summons to the Accused
After the complaint is filed, the accused is summoned by the court. If the accused does not appear on the desired date, the court may issue a bailable warrant of arrest against him, and if again he fails, the court may issue a non-bailable warrant of arrest.
The complainant must forward all the evidence important to the case like the original cheque returned by the bank, demand notice sent against non-payment, the cheque return memo, receipts of the legal notice, and other useful documents that can make the legal standing strong.
When the trial is over, and the accused is held guilty, he will be punished with the monetary value double the cheque amount or can even be punished with imprisonment that may extend to 2 years or even both.
Across the globe, one of the most common financial offences is a cheque bounce offence, and it can cause repercussions to the drawer of the cheque. If a cheque bounce offence has happened because of insufficient funds or irregularity of signatures, the accused and the complainant are imposed with penalties. The disposition of the cheque decides the penalty. If it is regarding repayment of the loan, the bank can further penalize the accused by adding additional late payments. This tag of having a cheque bounce offence is damaging to the CIBIL score of the accused, which would not let him borrow a loan in any financial institution in the future. Thus to maintain this score, one must avoid any cheque bounces and maintain a minimum amount in their balance accounts even after the cheque has been converted into monetary value.