Meaning of Cheque Bounce: An Introduction
Here we will explain The Meaning of Cheque Bounce And The Reasons for Cheque Bounce. A cheque is a bill of exchange, which is payable on demand. What is Cheque Bounce/Dishonour? - A cheque bounce is a situation in which the cheque is cannot be processed because of the insufficient amounts in an individual’s bank account.
There are at least two parties or more in a transaction, the person who issues the cheque is known as the drawer, and the person under whose favour the cheque is issued is known as the drawee. The drawer can issue a cheque bounce notice or a demand notice to the drawer.
What is a cheque?
A Cheque is a bill of exchange drawn upon a particularised named banker and is payable only on-demand only.
The following are the essential elements of a cheque:
- It has to be in writing,
- It has to be an unconditional order,
- The banker has to be specified,
- Payment should be directed to the specified person,
- It should be payable on demand,
- It should be for a specific sum of money,
- Should have the signature of the drawer.
What is Cheque Bounce/Dishonour?
A cheque has been one of the most commonly used methods for payments through banks. In simple words, the cheque is an instrument given by the account-holder (called the 'drawer') to another person (called the 'payee'), directing the drawer’s bank (called the 'drawee') to make payment of a certain amount to the payee. However, cases of cheque dishonour are very common these days due to various reasons.
Section 138 of the Negotiable Instruments (N.I.) Act, 1881 is applicable for the cases of the cheque bounce. According to Section 138 of the negotiable instrument act, cheque dishonour is a criminal offence and is punishable with imprisonment for up to two years or a fine or with both. So, the cheque bounce offence in India.
Many reasons for cheque bounce in India can be lead to the cheque bounce. The drawee issues a cheque bounce notice or a demand notice to the drawer. The Cheque bounce notice states that if the due amount is not paid within the prescribed period, then the drawee will initiate the legal proceedings under section 138 of the Negotiable Instruments Act, 1881 against the drawer.
You may ask what legal action can be taken for cheque bounce? and how to file a cheque bounce case? Read the article given below;
Read Also: - How to Write Legal Notice for Cheque Bounce/Dishonour
As per section 13 of N.I. Act, 1881, the meaning of negotiable instrument means a cheque, bill of exchange, or promissory note. The cheques are governed by the Negotiable Instruments Act. Section 138 of the N.I. Act, 1881 states that the provisions relating to the cheque bounce for the insufficiency of funds or amount in the bank account. The Negotiable Instrument Act, of 1881 is also known as the cheque bounce law in India.
If any cheque is issued by the drawer to the drawee to pay a certain amount and the cheque is returned, cancelled or dishonoured by the bank because of the insufficient certain amount in the bank account of that person to honour the cheque. The cheque is also can be dishonoured if it exceeds the amount that has been arranged to be paid from that bank account.
Hence, an individual can file a criminal case under section 138 of the Negotiable Instrument Act, 1881, and also file a Summary suit under Order 37 of the Criminal Procedure Code 1908.
Reasons For Cheque Bounce
In India, the dishonour of the cheque is a serious and cognizable offer. Therefore, you should careful when you go to the withdrawal of your cheque. You should aware of the common mistakes while writing which cause to dishonour of the cheque.
Following are the lists of reasons for cheque bounce;
1. When the wrong date is mentioned on the cheque
It has been scrutinised that when the drawer mentions a wrong date in the cheque which occurs in the dishonour of the cheque. Not only the incorrect date but if the drawer specifies a date that is three months from the date of the cheque dishonoured, then the cheque is also dishonoured by the bank.
As we know, the cheque is valid for 30 days from the issue of a cheque and here, 30 days from in cheque which date is mentioned. After 30 days your cheque will not be accepted by the banks, this is one of the reasons for the cheque bounce.
Moreover, if the cheque is a post-dated cheque and the drawee puts the cheque ahead of the mentioned date, it should result in the dishonour of the cheque. To avoid the cheque bounce, the drawer must consider the correct date and mention it in the cheque.
2. When the signature is mismatched
When the drawer's sign is mismatched with the bank account then the bank will dishonour the cheque. It has been observed that many times people forget their signatures and drop up signing a wrong signature on the cheque which leads to the dishonour of the cheque.
If the signature does not match with the bank account's record, it will result in a cheque bounce.
To avoid such circumstances, the signature of the drawer must match his bank account's record.
3. When there is an insufficient amount in the drawer's bank account
If there is an insufficient or lack of a certain amount in the drawer’s bank account from which the cheque has been issued then the bank will dishonour the cheque.
In case of insufficient funds in the drawer's bank account, the bank will stop the payment for further transactions through that bank account. It will also make a penalty to both drawer and drawee.
Insufficient funds are one of the main reasons for the dishonour of the cheque. To avoid bouncing of cheque, the drawer must ensure that there is a sufficient amount of cheque in his bank account before issuing any cheque.
4. When there is overwriting on the cheque
The administration of the bank has the authority to dishonour the cheque if the drawer has scrabbled or done overwriting on the cheque. The cheque must be maintained in a safe condition.
If the bank finds that the cheque is in a bad status or is degraded and the details mentioned in the cheque are not clearly apparent and not visible with the naked eyes, then it will result in the cheque bounce.
5. The different mentioned amount in words and numbers sections of the cheque
The bank may dishonour the cheque if there is an unprecedented amount mentioned in the words and numbers in the cheque. The amounts specified in words must be the same as the amount mentioned under the binary representation. This common error can lead to the cheque bounce.
To avoid the cheque bouncing, one should write the same amount in both words as well as in numbers sections
6. When the cheque is damaged
When the condition of the cheque is not good or the cheque gets damaged then the bank cannot ascertain the important sections of the cheque when it comes to withdrawal and your cheque will bounce.
When the cheque is damaged means the contents fulfilled by you in cheque bounce sections will not be visible to bankers when you put your damaged cheque in the bank. And, the bankers will dishonour your cheque.
So, you have to maintain the quality of the cheque and you should preserve the quality of the cheque as good as possible.
Conclusion
The banks observe cheque bounce cases regularly. Hence in India, we have laws in place to help us handle cases of cheque bounce. Everyone should know what to do when a cheque bounces. It is always good to hire an expert lawyer who will assist you in filing and drafting legal notice for cheque bounce.