Understanding Dishonour of Cheque in India
The dishonour of cheque in India is a prevalent financial issue that can cause significant inconvenience for both individuals and businesses. It occurs when a cheque is returned unpaid by the bank, disrupting transactions and potentially leading to legal consequences. Understanding what constitutes the dishonour of cheque in India, the legal framework surrounding it, and the steps to take can help mitigate such issues and promote financial responsibility.
What Is Dishonour of Cheque?
Dishonour of cheque occurs when a bank refuses to honor the payment of a cheque presented by the payee. This scenario, often called a “bounced cheque,” arises due to various reasons, including:
- Insufficient Funds: The drawer’s account lacks the required amount to cover the cheque.
- Signature Mismatch: The signature on the cheque does not match the bank’s records.
- Validity Period Expired: Cheques are typically valid for three months from the date of issuance.
- Stop Payment: The drawer instructs the bank to halt payment.
- Technical Errors: Mistakes such as overwriting or missing details on the cheque.
Legal Framework Governing Dishonour of Cheques in India
The Negotiable Instruments Act, 1881, particularly Section 138, governs cheque dishonour. Under this provision, a dishonoured cheque due to insufficient funds or exceeding the agreed amount is considered a criminal offence.
Key Provisions
- Notice of Dishonour: The payee must send a written notice to the drawer within 30 days of receiving information from the bank.
- Response Period: The drawer has 15 days to settle the payment after receiving the notice.
- Legal Complaint: If the drawer fails to comply, the payee can file a complaint in court within 30 days from the expiry of the notice period.
Penalties under Section 138 include imprisonment of up to two years, a fine up to double the cheque amount, or both.
Relevant Legal Judgments
- Dashrath Rupsingh Rathod v. State of Maharashtra (2014): It clarified jurisdictional issues, mandating that cases be filed where the cheque was dishonoured.
- Makwana Mangaldas Tulsidas v. State of Gujarat (2023): The Supreme Court emphasised swift judicial processes for cheque dishonour cases, advocating summary trials to avoid procedural delays.
Steps to Handle Dishonour of Cheque
If faced with a dishonoured cheque, take the following actions:
- Contact the Drawer: Reach out to understand the reason for dishonour and seek an amicable resolution.
- Preserve Documentation: Keep copies of the dishonoured cheque, bank memo, and communication records.
- Issue a Demand Notice: Send a written notice to the drawer demanding payment within 15 days.
- Seek Legal Recourse: If the drawer fails to pay, consult a legal expert and file a complaint under Section 138.
Preventing Dishonour of Cheques
Dishonoured cheques disrupt financial operations and damage relationships. Preventive measures include:
- For the Drawer: Ensure adequate funds are available before issuing a cheque and double-check all cheque details.
- For the Payee: Verify the drawer’s credibility and cheque details before accepting it.
The Bigger Picture: Financial Discipline
The increase in cheque Dishonour cases highlights the need for financial discipline. Digital payments offer an alternative to traditional cheques, yet understanding the legal implications of cheque dishonour remains crucial.
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