As per Section 6 of the Negotiable Instruments Act 1881, “A cheque is a bill of exchange drawn on specific banker and not expressed to be payable otherwise than on demand and it includes electronic image of truncated cheque and a cheque in electronic from.”
What is dishonour of cheque?
A cheque is said to be honoured if the banks give the amount to the payee. While, if the bank refuses to pay the amount to the payee, the cheque is said to be dishonoured in banking law. In other words, dishonour of cheque in banking law is a condition in which the bank refuses to pay the amount of cheque to the payee.
Reasons for dishonour of cheque in banking law
There are numerous reasons when the cheques are dishonoured or why cheques are refused, returned, bounced or dishonoured. Few of the reasons have been mentioned below :
1.When the cheque is overwritten.
2.When the signature is absent or the signature in the cheque does not match with the specimen signature kept by the bank.
3.When the name of the payee is absent or not clearly written.
4.When the amount written in words and figures does not match with each other.
5.When the account number is not mentioned clearly or is altogether absent.
6.When the drawer orders the bank to stop payment on the cheque.
7.When the court of law has given an order to the bank to stop payment on the cheque.
8.When the drawer has closed the account before presenting the cheque.
9.When the fund in the bank account is insufficient to meet the payment of the cheque.
10.When the bank receives the information regarding the death or lunacy or insolvency of the drawer.
11.When any alteration made on the cheque is not proved by the drawer by giving his/her signature.
12.When the date is not mentioned or written incorrectly or the date mentioned is of three months before.
LEGAL RECOURSE
In banking law, when a cheque is dishonoured, the drawee bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reasons for the dishonour of cheque.
The payee’s banker then gives the dishonoured cheque after mentioning the reasons for the dishonour of the cheque along with the memo to the payee. The holder or payee can resubmit the cheque within three months of the date on it, if he believes it will be honoured the second time.
However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally.
The payee may legally sue the defaulter/drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards payee. However, if the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases.
In banking law, the reasons for dishonour of cheque along with the punishment are treated under the Negotiable Instruments Act,1881.
According to Section 138 of the said Act, the dishonour of cheque in banking law is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.
If payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing.
The payee has to send the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer.
If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.
However, the complaint should be registered in a magistrate’s court within a month of the expiry of the notice period. It is essential in this case to consult an advocate who is well versed and experienced in this area of practice to proceed further in the specified matter.
Legally, certain conditions have to be fulfilled in order to use the provisions of Section 138.The cheque should have been drawn by the drawer on an account maintained by him.
The cheque should have been returned or dishonoured because of insufficient funds in the drawer’s account. The cheque is issued towards discharge of a debt or legal liability. After receiving the notice, if the drawer doesn’t make the payment within 15 days from the day of receiving the notice, then he commits an offence punishable under this section.
Though the provision contained in Sec.143 of the N. I. Act provides that cases u/s.138 are to be tried in summary way, they should be tried as a regular summons cases. If it appears to the Magistrate that nature of case is such that sentence of imprisonment for a term exceeding one year may have to be passed, or that it is for any other reasons undesirable to try the case summarily, Magistrate shall after hearing the parties record and order to that effect and try the case as a regular summons case.
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