Cheque Bounce Notice

What is Dishonor/Cheque Bounce?

A Dishonored Cheque is cheque that the bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honor a cheque, with insufficient funds being the most common cause.

Cheques are negotiable instruments, which are payable on demand. When there is unsuccessful processing of cheque due to insufficient funds, incorrect amount or mismatch of signature, the cheque bounces. Most of the cheques bounces in India are due to insufficient funds.

What happens if there is a Cheque Bounces?

When the cheque bounces, the payee has to file a legal notice within 30 days of return memo from bank. After this, if the drawer makes the payment, there is no need to file the case. If he doesn’t make the payment then case has to be filed within 30 days.

Reasons for Cheque Bounce

A cheque can be bounced because of the following reasons.

1. Insufficient Balance: Not enough balance in the drawer’s account to make the payment.
2. Signature: The signature of the drawer is absent or unclear or does not seem to match the one in the Bank’s data.
3. Account Number: The account number is missing on the cheque or not mentioned in an eligible or readable manner.
4. Amount: The amount provided in the words and figures do not match.
5. Overwriting: Signature, or amount or other statements have been overwritten in the cheque.
6. Alterations: Any alterations are done on the cheque that has not been proved or verified by the signature of the payee/drawer.
7. Order by the Drawer or Court: If the drawer orders the bank to stop the payment of the cheque or the court orders the bank to stop the said payment.

Things required to be considered for the Validity of Cheque Bounce Notice

• Information regarding the cheque presentation,
• Information regarding the request made to the cheque issuer to make payment on an immediate
• It must be in reference to Section 138 of the Negotiable Instruments Act;
• Reason for non-realization of payment and
• A notice must be presented within 30 days of return of cheque to the cheque issuer.

Format for Cheque Bounce Notice

Drafting a legal notice is no joke. While drafting the cheque bounce notice, one needs to be extra cautious. Since it is intimation about a future legal action, we need to frame the notice accordingly. Once a notice is sent, we cannot make changes and we cannot go against the statements given in the notice. Only a legal expert can draft a full proof cheque bounce notice.

What are the requirements for legal notice for Cheque Bounce?

Following are the key requirement for Cheque Bounce notice

• The Cheque should be towards a specific liability.
• Moreover, it should be within a validity period.
• The cheque should be returned due to insufficient funds.
• The notice should be given within 30 days of cheque bounce.
• The drawer has failed to make the payments within 15 days of Cheque bounce notice, legal action can be taken against him within 30 days.

The Procedure for Cheque Bounce Notice

1. The Drawee has to firstly send a demand notice to the drawer within 30 days of return memo through a registered post.
2. Once the notice is received, the drawer has to make the payment within 15 days.
3. If the payments are not made the drawee has the right to lodge a complaint. 
4. Once the Court receives complaint, the accused will be summoned.
5. Proceeding will be initiated under Section 138 of Negotiable Instrument Act.

How to file a Cheque Bounce case?

In India a cheque bounce is a criminal offence stipulated under Section- 138 of the Negotiable Instruments Act, 1881. However, in case of a cheque bounce, the aggrieved party can file a criminal as well as a civil suit against the accused.

Structure of payment of court process Fees

Every litigation process requires payment of court fees. Similarly, while filing a cheque bounce complaint, the drawee (complainant) has to pay a standard amount of court fees which varies case to case and entirely depends on the cheque amount against which the complaint is being filed in the court.

The standard court fee structure varies for different cheque amounts which are mentioned below:

Cheque Amount                            Court Fee

 Rs. 0 to 50,000/-                             Rs. 200/-

Rs. 50,000/- to 2,00,000/-               Rs. 500/-

Above Rs. 2,00,000/-                      Rs. 1000/-

Consequences of Cheque Bounce

The threat of prosecution usually results in prompt settlement (if the drawer is an individual, the proceedings would happen under Section 138 of the NI Act. In case of a company, its managing director can be personally prosecuted under Section 141). The demand notice must be sent within 30 days from the date you found out that the cheque issued to you bounced. Its purpose is to demand payment and inform the issuer that he or she will be prosecuted if payment is not made within 15 days.

The following are the consequences of Cheque Bounce Notice:

1. Negative influence on the CIBIL score

A CIBIL score is a 3 digit number, fluctuating between 300 to 900 which is used by banks and Non- Banking Financial Companies (NBFCs) to determine a person’s credit suitability and the chances of repayment of the loan amount on time by that person.

2. Filling of civil and criminal charges by the aggrieved party

If you are lucky, you can get away with only a small fine paid to the bank for a bounced cheque. On the other hand, if your stars are aligned against you, the aggrieved party that does not receive the promised funds can file a civil or criminal case against you as an issuer of the cheque.

Under Sec 417 and 420, a non-bailable immediate warrant can be issued. However, in both the cases, a case of cheating has to be proven. If more than 1 cheque is bounced, the payee can file separate suits against each dishonoured cheque, which can compound issues for the defaulter.

3. Penalty from the Bank

In case a cheque bounce has arisen because of insufficient funds in the bank account or there has been irregularity in the signatures or due to some other technical issue as mentioned earlier, the drawer (accused) and the drawee (complainant) are imposed with penalties by their respective banks.

4. Other Risks

As per the RBI guidelines, banks can stop issuing cheque book facilities to any customer booked for repeated cheque bounce offence at least four times on cheques valued at over Rs 1 crore. If you have kept any collateral security with the bank for any loan and if repayment EMI cheque bounces, the banks are well within their right to issue a legal notice or deduct money from your account.