The Cheque bounce is caused by insufficient account balance, expiration of the Cheque validity period and coverage. According to the Supreme Court report, the return of cheques is very common, with nearly 400,000 cases pending. Here, you will learn about the legal rights involved in the return of a Cheque.
Article 138 of the 1904 “Circulating Instruments Act” is the main law for the return of cheques. The following is an analysis of existing rights and remedies in the return of a Cheque.
According to the bounce of the Cheque, the issuer of the Cheque is informed that there is a chance to correct the error that caused the Cheque to bounce, and the payee is required to resubmit the Cheque for liquidation. This can be done within 3 months from the date the Cheque is returned. The payee of the Cheque informs the payee of the Cheque of the return of the Cheque by issuing a “Cheque refund notice”, which includes the reason for the payment in the unpaid Cheque. In order for a person to file a valid claim, the person must ensure that they submit the Cheque to the bank within three months from the date of issuing the Cheque, otherwise the Cheque will expire.
If the Cheque is returned a second time, the recipient of the Cheque may choose to send a request notification to the issuer of the Cheque. The demand notification usually requires the issuer to transfer the necessary funds within 15 days, otherwise the recipient will file a complaint under section 138 of the Transferable Notes Act. This request notification must be sent within 30 days of receipt of the Cheque returned by the bank. If there is a justifiable reason, the court can consider the delay.
If the issuer of the Cheque does not respond to the notice of request or fails to comply with the notice of the request, the payee may choose to file a complaint with the court within 30 days. With regard to jurisdiction, the court at the place where the cheque is opened, the bank presents and/or returns the cheque has jurisdiction. Complaints under section 138 may also be filed against the company. It must be noted that cheques issued as “gifts” are not covered by section 138 of the Transferable Notes Act.
The original documents (such as the original cheque, the notice copy and the confirmation receipt) shall be verified by the first-level judicial magistrate in accordance with the complaint and the necessary court fees paid to the court. The complainant must appear before the court and be examined by a magistrate. The magistrate will issue a subpoena for the issuer of the cheque to appear in court. If convicted, the issuer will be punished or fined under section 138 of the Currency Notes Act. In addition to seeking remedies through this method and the civil procedure shown below, the recipient of such a cheque can also file a complaint about cheating under section 420 of the Indian Penal Code.
As mentioned in the previous section, the nature of the complaint is a criminal complaint, which may result in a penalty of imprisonment for the defaulter, but usually does not result in the recipient of the returned cheque receiving the due fee.
Therefore, it is prudent for the payee to file a separate civil suit to recover the payment. This can be done by filing a summary action under Order No. 37 of the 1908 Civil Procedure Code. The difference between summary litigation and ordinary civil litigation is that it does not grant the defendant the right to defend itself, and in order to be able to defend himself, the defendant must seek prior permission from the court.
Simplified litigation is only allowed on recovery issues. Therefore, in the case of a Cheque bounce, a summary action can be filed to recover the money. In addition to the risk of default or fines for breach of contract, the defaulter also issues a Cheque to the bank that issued the defaulter to prevent the defaulter from using his facility and possibly closing the account.