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:
- 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.
- 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.
- 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
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.