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Dishonor of a cheque, commonly referred to as a “bounced” cheque, signifies the bank’s refusal to honor the instrument upon presentation. This non-acceptance can arise from several factors, including but not limited to: insufficient funds in the account, closure of the account, discrepancies in the signature, the cheque being post-dated, or the cheque being stale-dated.
The dishonor of a cheque constitutes a legal matter with potential financial ramifications for both the issuer (drawer) and the recipient (payee). In India, the legal framework governing cheque dishonor is established under the provisions of the Negotiable Instruments Act, 1881.
When a cheque is not honored upon presentation, it is referred to as being dishonored or “bounced.” This occurs due to several potential factors that prevent the bank from processing the payment. These reasons include, but are not limited to, insufficient funds in the payer’s account, closure of the account, discrepancies in the signature, the cheque being dated for a future date (post-dated), or the cheque exceeding its validity period (stale-dated).
Legally mandated procedure dictates that the payee or holder in due course of a dishonored cheque must furnish a written notice to the drawer within a thirty-day period commencing from the date of notification of the dishonor by the relevant banking institution. This notice shall explicitly demand remittance of the cheque’s stipulated amount within fifteen days from the drawer’s receipt of said notice.
> Name, address, and description of the payee/holder
> Date and place of issue of the cheque
> Particulars of the dishonored cheque (amount, date, bank details)
> Reason for dishonor as provided by the bank
> Demand for payment of the cheque amount
> Mention that legal action will be initiated if the payment is not made within 15 days from the receipt of the notic
Following receipt of the notification, the drawer is afforded a period of fifteen (15) days to remit the outstanding cheque amount. In the event of the drawer’s failure to effect payment within this stipulated timeframe, the payee or holder is entitled to initiate appropriate legal proceedings.
Upon the expiration of the statutory notice period without remittance, the payee or holder in due course possesses the right to initiate legal proceedings by filing a complaint in the competent court of jurisdiction (either the Magistrate Court or the Metropolitan Magistrate Court, as applicable). Subsequent to the filing of a complaint, the court will commence proceedings in accordance with the Code of Criminal Procedure. Should the drawer be adjudicated guilty, they are liable to punitive measures, which may include imprisonment, monetary fines, or a combination thereof.
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