Cheque Bounce Notice

Overview:

A notice of bounced cheque serves as a warning to the issuer that legal action will be pursued if the funds are not promptly repaid. This situation arises when a cheque cannot be honored due to insufficient funds in the issuer’s account. It is imperative to act swiftly to address the issue. Initially, a written notice is sent to the drawer requesting payment, and if ignored, legal recourse may follow. Sometimes, a resolution can be swiftly achieved through this notice.

Under the Negotiable Instruments Act, bouncing a cheque is considered a serious offense, potentially leading to fines or imprisonment. To uphold their rights under this act, the drawer must present the bounced cheque within 30 days of its dishonor. Non-payment or bouncing of a cheque is a significant legal violation in India, punishable under Section 138 of the Negotiable Instruments Act.

What is a Cheque?

According to Section 6 of the Negotiable Instruments Act, 1881, a cheque is defined as a bill of exchange drawn on a specified banker, payable on demand. It is a negotiable instrument instructing a bank to pay a specified amount from the drawer’s account to the payee or bearer. In India, cheques are widely used for payments and transactions due to their secure and documented method of fund transfer.

Cheques can be either crossed or open. A crossed cheque must be deposited into a bank account, while an open cheque can be cashed over the counter. Regardless of type, cheques are a crucial financial tool for both personal and business transactions.

Key Elements of a Cheque

1. Drawer: The person or entity who writes the cheque.
2. Payee: The person or entity to whom the cheque is payable.
3. Drawee: The bank on which the cheque is drawn.
4. Date: The date on which the cheque is written.
5. Amount: The sum of money to be paid, written in both words and numerals.
6. Signature: The drawer’s signature, authorizing the bank to make the payment.

What is Cheque Bounce?

Cheque bounce occurs when a bank rejects a cheque for reasons such as insufficient funds, signature mismatch, expired validity, or other bank-determined issues. This results in non-payment to the payee and can lead to legal action and fines.

Types of Cheques in India

1. Bearer Cheque: Payable to the person presenting it at the bank. Transferable by delivery and doesn’t require additional authorization from the issuer. Identified by “or bearer” printed on it.
2. Crossed Cheque: Features two parallel lines with “a/c payee” on the top left, ensuring payment is made only to the individual named on the cheque. These cheques are considered safe.
3. Order Cheque: The “or bearer” is canceled, and payment is made only to the person whose name is written on the cheque after verifying their identity.
4. Post-Dated Cheque: Has a future date for encashment. Even if presented early, the bank processes it only on the specified date.
5. Open Cheque: Uncrossed and payable over the counter to the bearer. Can be transferred with the issuer’s signature on both the front and back.
6. Traveller’s Cheque: Used by tourists to avoid carrying cash. Issued by one bank and encashed in another location or country. They do not expire and can be used for future trips.
7. Stale Cheque: A cheque that is older than its three-month validity period.
8. Self Cheque: Has “self” written in the drawee column and can only be drawn at the issuer’s bank.

Understanding Cheque Bounce Causes

Cheque bounce can occur due to several reasons, leading to legal and monetary penalties:

1. Insufficient Account Balance: The drawer’s account lacks sufficient funds.
2. Stop Payment Instruction: The issuer instructs the bank to stop payment.
3. Payee Name Issues: Missing or unclear payee name.
4. Account Number Issues: Unclear or missing account number.
5. Insolvency: The drawer is declared insolvent or deceased.
6. Data Mismatch: Amount in figures does not match the amount in words.
7. Bank Issue: Presented to a bank other than the one on which it was drawn.
8. Signature Mismatch: Drawer’s signature does not match the bank’s records.
9. Alterations & Overwriting: Visible alterations or overwriting on the cheque.
10. Expired Validity: Cheques presented beyond the validity period.
11. Damaged Cheque: Details are not visible due to damage.
12. Frozen Account: Cheque issued from an account frozen by the government or court order.

Essentials of a Cheque Bounce Notice

A cheque bounce notice must comply with legal requirements and include:

1. Sender’s Details: Name, address, and contact information of the sender (drawer).
2. Recipient’s Details: Name, address, and contact information of the recipient (payee).
3. Date: The date on which the notice is sent.
4. Subject: Clear subject line such as “Notice of Dishonour of Cheque.”
5. Details of Dishonoured Cheque: Cheque number, date of issuance, bank name, branch name, and amount.
6. Statement of Dishonour: Clearly state that the cheque has been dishonoured, including the reason.
7. Demand for Payment: Request payment of the cheque amount within 15 days of receiving the notice, warning of legal action under Section 138 thereafter.
8. Legal Consequences: Inform the drawer of the legal consequences of not settling the cheque amount within 15 days.
9. Signature: Signature of the sender/payee along with their name and designation (if applicable).

Several crucial aspects must be addressed to ensure the validity of a cheque bounce notice:

Adherence to Legal Framework: The notice must align with the provisions stipulated in the Negotiable Instruments Act, particularly Section 138. This ensures that the notice complies with the legal requirements and can be enforced if necessary.

Documentation of Cheque Presentation: It is essential to include details regarding the presentation of the cheque, such as the date on which the cheque was presented for payment and the bank or financial institution where it was deposited. This documentation provides clarity on the transaction timeline.

Explanation for Non-Payment: The notice should elucidate the reasons for the non-realization of payment. This could include factors such as insufficient funds in the issuer’s account, a closed account, or any other relevant circumstances contributing to the bounced cheque.

Request for Prompt Payment: The notice should explicitly state the demand for prompt payment from the cheque issuer. This conveys the urgency of the matter and emphasizes the need for timely resolution to avoid further legal consequences.

Timely Issuance of Notice: According to legal guidelines, the cheque bounce notice must be served within 30 days after the cheque is returned unpaid to the issuer. This timeframe is critical for initiating the legal process and preserving the rights of the payee under the Negotiable Instruments Act.

Details in Cheque Bounce Notice

A comprehensive Cheque Bounce Notice contains specific details to ensure clarity and effectiveness.

Identity and Mailing Address of the Cheque Drawer: The notice should clearly identify the individual or entity who issued the bounced cheque. This includes their full legal name, as well as their mailing address for correspondence purposes.

Payee’s Name and Address: It is essential to include the name and address of the payee, the individual or entity to whom the cheque was originally issued. This information helps in identifying the intended recipient of the payment.

Details of the Cheque: The notice should provide specific information regarding the cheque that was presented to the bank for payment. This includes details such as the cheque amount, date of issuance, and cheque number for accurate identification.

Date of Cheque Return: It is crucial to mention the date on which the cheque was returned unpaid by the bank. This helps establish the timeline of events and indicates when the issue first arose.

Cause of the Cheque’s Bounce: The notice should clearly state the reason for the cheque bounce. This could include factors such as insufficient funds, a closed account, or any other pertinent details contributing to the dishonor of the cheque.

Request for Immediate Payment Arrangement: The notice should contain a firm request for the outstanding amount to be arranged and paid immediately. This conveys the urgency of the matter and emphasizes the need for prompt resolution.

Citation of Legal Provision – Negotiable Instruments Act, Section 138: It is essential to cite the relevant legal provision under which the cheque bounce notice is being issued. Specifically, referencing Section 138 of the Negotiable Instruments Act helps establish the legal basis for the notice and underscores the seriousness of the matter.

A Cheque Bounce Notice can be issued in accordance with Section 138 of the Negotiable Instruments Act under specific circumstances.

Drafting by Experts: The notice should be meticulously drafted by legal experts or professionals well-versed in the intricacies of the Negotiable Instruments Act. This ensures that the notice adheres to legal requirements and effectively communicates the intent.

Printing Requirements: Once the drafting process is complete, the notice must be printed either on plain paper or on the company’s official letterhead. Printing on official letterhead adds a sense of formality and authenticity to the notice.

Inclusion of Essential Details: The Cheque Bounce Notice must include crucial details such as:

   – The name of the beneficiary to whom the cheque was issued.

   – The name and address of the issuer of the cheque.

   – The due date of the cheque, indicating when the payment was expected.

   – Explanation for the return of the cheque, specifying reasons such as insufficient funds or a closed account.

Compliance with Section 138: It is imperative that the issuance of the Cheque Bounce Notice complies with the provisions outlined in Section 138 of the Negotiable Instruments Act. This ensures that the notice is legally valid and enforceable.

Requirements:

To send a Cheque Bounce Notice, you will need the following information:

• The name and contact details of the drawer of the bounced cheque
• The date on which the cheque was issued
• The amount of the bounced cheque
• The reason for the dishonour of the cheque
• The details of the bank where the cheque was deposited
• Your own contact details

Documents Required:

To prepare a Cheque Bounce Notice, you will need to provide the following documents:

• Copy of the bounced cheque
• Copy of the notice sent to the drawer of the cheque requesting payment
• Copy of the bank’s return memo or slip

Steps:

Drafting the Notice: Utilize our website to draft the Cheque Bounce Notice. Ensure that the notice contains all necessary details, including:

• The name of the beneficiary to whom the cheque was issued.
• The name and address of the cheque issuer.
• The due date of the cheque, indicating when the payment was expected.
• Explanation for the return of the cheque, specifying reasons such as insufficient funds or a closed account.
• Request for prompt alternate payment from the cheque issuer.
• Confirmation that the notice is issued in accordance with Section 138 of the Negotiable Instruments Act.

Printing the Notice: Once the drafting process is complete, print the notice on either plain paper or the company’s official letterhead. Printing on letterhead adds credibility to the notice.

Sending the Notice: After printing, ensure that the Cheque Bounce Notice is sent to the person who issued the cheque via registered post or courier for proof of delivery. Alternatively, the notice can be delivered in person, with a receipt obtained as evidence of delivery.

Follow-Up and Documentation: Keep records of the dispatched notice, including proof of delivery and any responses received. If necessary, follow up with the recipient to ensure compliance with the notice’s demands.

Legal Consultation: Seek legal advice if the recipient fails to respond or comply with the notice. Legal professionals can provide guidance on further steps, including initiating legal proceedings under Section 138 of the Negotiable Instruments Act.

Important Sections

Section 138 Of The Negotiable Instruments Act:

Section 138 of the Negotiable Instruments Act defines bouncing a cheque due to insufficient funds as a criminal offense, warranting legal repercussions including imprisonment. This provision mandates that individuals issuing cheques must ensure there are ample funds in their account to cover the cheque amount. Should the bank return the cheque unpaid, it disrupts the financial transaction’s due course, leading to legal consequences for the drawer. To avoid liability, the drawer must ensure the cheque is drawn on an adequately funded account. Conviction under Section 138 can result in imprisonment for up to two years, a fine double the cheque’s value, or both. These penalties aim to deter fraudulent or negligent financial practices, preserving the integrity of financial transactions.

Section 144 Of The Negotiable Instruments Act:

Under Section 144 of the Negotiable Instruments Act, individuals in charge of a company’s operations during a cheque bouncing incident are held accountable, including for cheques issued by the company. This provision deems it unlawful for a company’s cheque to bounce due to insufficient funds. When a company’s cheque bounces, all individuals responsible for managing the company’s affairs at the time may be implicated in the offense. This includes directors, secretaries, managers, and other officers. If it can be established that these individuals either authorized the act, displayed negligence, or engaged in it for convenience, they will be deemed guilty and subjected to appropriate penalties. Thus, Section 144 emphasizes corporate accountability and ensures that those in positions of authority are held responsible for financial irregularities within the company.

Responding to a Cheque Bounce Case

Consultation with a Lawyer: Before responding to the legal notice, it’s crucial to seek advice from a lawyer specializing in cheque bounce cases. A lawyer can provide expert guidance on the legal implications, your rights, and the best course of action to take in your defense.

Consideration of Options: After consulting with a lawyer, consider your options for resolving the matter. You may choose to defend yourself against the accusations or opt to settle the dispute by paying the pending amount through a cheque.

Payment of Pending Amount: If you decide to settle the dispute, ensure that the pending amount is paid promptly by cheque to the payee or their representative. This can help avoid further legal actions and resolve the issue amicably.

Response to Legal Notice: In your response to the legal notice, there is no specific format required, but certain key elements should be included:

   – Address the legal notice to the drawee’s attorney or representative.

   – Provide your name, address, and relevant personal details for identification.

   – Clearly state the specifics of the issue, including the date of the cheque, details of the cheque return, and any other relevant information.

   – Respond to the accusations made against you in the legal notice. Provide your side of the story, including any relevant explanations or defenses you may have.

   – Express your willingness to cooperate in resolving the matter and indicate any steps you have taken or intend to take to address the issue.

Professional Assistance: If you are unsure about how to draft your response or need assistance in formulating your defense, seek guidance from your lawyer. They can help you draft a clear and effective response that protects your interests and ensures compliance with legal requirements.

Corporate Raasta Consulting is here to help

Corporate Raasta Consulting can offer legal expertise and guidance to the business on how to respond to the cheque bounce notice effectively. We review the notice, assess the legal implications, and advise on the appropriate course of action to take.

We help the business understand its legal obligations regarding the bounced cheque and the steps required to address the issue in compliance with applicable laws and regulations.

The firm can assist in drafting a comprehensive response to the cheque bounce notice, ensuring that all relevant details are included and the business’s interests are protected. We formulate a strong defense or negotiate a settlement on behalf of the business.

Overall, Corporate Raasta Consulting can serve as a trusted advisor and partner to the business, offering comprehensive legal and compliance solutions to navigate the complexities of a cheque bounce notice effectively.