Cheque Dishonour Notice

A cheque is considered dishonoured when a bank returns it unpaid with a “Cheque Return Memo” stating the reasons for non-payment. Cheque bounce may happen due to several reasons including insufficient funds, discrepancy with the signature, amount, name of payee, instances of overwriting etc.

As per Section 138 of Negotiable Instrument Act, 1881, the dishonour of cheque is a criminal offence and the offender may attract the punishment of imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

Essential Characteristics of a Cheque

  • Written form of expression
  • Specification of the Bank
  • Payable on demand.
  • Directed to a specific person or organisation
  • Unconditional order
  • Specification of paying amount
  • Clear signatures of the drawer

Reasons for Cheque Bounce

  • Overwriting on cheque
  • Drawer’s signature is not matching with the specimen signature kept by the bank
  • Absence of the name of the payee
  • Written amount in words and figures does not match each other
  • Drawer himself ordered the bank to stop payment against the concerned cheque
  • Drawer has closed the withdrawal account before presentation of cheque in bank
  • Insufficient fund in the bank account
  • Cheque is presented after its expiration (After 3 months of mentioned receiving date)
  • Death of drawer or drawee
  • Insolvency of drawer
  • Insanity of drawer
  • Issuance of cheque against the rules of trust
  • Any alterations in the cheque
  • Doubt in authenticity of cheque

Consequences of a Cheque Bounce

  1. Negative impact on three-digit CIBIL score which determines a person’s credit suitability and the position of repayment of the loan amount for future purposes
  2. Criminal Suit against the drawer
  3. Civil Suit against the drawer
  4. In worst situation, disallowance for further issuance of cheque book

Procedure

STEP 1: Send a demand notice to the drawer within 30 days of returning of cheque from bank. The notice must mention the following:

• Specification of objective of notice
• Cheque was presented in the bank within stipulated time- period
• Instances of default and breach of trust
• Demand of unpaid pending amount
• A stipulated time period of 15 days to pay the amount after which the drawee will initiate the appropriate legal proceeding under Negotiable Instruments Act, 1881

NOTE: Preserve the delivery receipt or online status of notice for future purpose.

STEP 2: In case of no reply from the drawer within 15 days from the delivery of the notice or drawer is unnecessarily delaying the payment or refused to pay the amount, in those circumstances a legal complaint can be filed in the court of jurisdiction within 30 days from the date of receipt of the demand notice by the drawer along with required documents as annexure.

Jurisdiction depends on following place of events:

• Place where the concerned cheque was drawn
• Place where the concerned cheque was presented
• Place where the bank returned the cheque
• Place where the notice was served to the drawer

The drawer’s failure to pay the payee’s cheque balance due to any reason on the due date or when the payee’s banker submits it, is known as dishonour of cheque. 

A cheque shall be deposited on or after the date specified on the cheque, but not later than 3 months from the specified date, failing which the cheque shall become invalid or ‘stale’.

In India, cheque bounce is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881 but a criminal as well as a civil suit can be filed for a cheque bounce.

As per Section 138 of Negotiable Instrument Act, 1881, the dishonour of cheque is a criminal offence and the offender may attract the punishment of imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

A civil suit can be filed as a summary suit after a tedious legal battle to recover money to recover the unpaid amount along with the costs of litigation under Order 37 of Code of Civil Procedure 1908

A cheque is deemed valid for a period of three months from the date when it is drawn.

When a cheque is dishonoured, a ‘Cheque Return Memo’ is offered by the bank to the payee explaining the reason(s) why the cheque was bounced.

  1. Insufficient funds
  2. Incorrect date
  3. Signature mismatch
  4. If payment is stopped
  5. Mismatch of the amount and/or figures
  6. Overwriting
  7. Stale cheque

 

What's included

  • Consultation with our Experts
  • Draft Notice

Documents Required

  • Copy of cheque returned by bank
  • Cheque return memo
  • Bills of unpaid amount
  • Agreement between the parties, if any

Cheque Dishonour Notice - s. 138


A cheque bounces due to several reasons like insufficient account balance, torn cheque, overwriting, expired validity of cheque etc.

₹1,999.00

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