There are certain precautions to be taken by customers when dealing with cheques.
- Ensure that the cheque has CTS 2010 written on it.
- Preferably use image-friendly coloured inks like blue and black while writing cheques. Avoid using inks like green and red.
- You should also avoid any alterations/corrections once you have written the cheque. Preferably, use a new cheque leaf if you need to make any alterations/corrections as the cheque may be cleared through image based clearing system.
- Make sure that your signature on the cheque is the same as the signature in the bank records. Otherwise, your cheque may be declined and the bank may penalize you.
Use CTS Cheques Only
Banks should use “CTS 2010” cheques which are not only image friendly but also have more security features.
Using Stamps on Cheques With Care
Banks should exercise care while affixing stamps on the cheque forms, so that it does not interfere with the material portions such as date, payee’s name, amount and signature. The use of rubber stamps, etc, should not overshadow the clear appearance of these basic features in the image.
Scanning of CTS Cheques by Banks
It is necessary to ensure that all essential elements of a cheque are captured in an image during the scanning process and banks have to exercise appropriate care in this regard.
There are several reasons that could cause problems in cheque processing and lead to cheque bouncing. But not all of them warrant legal action. For example, a cheque could bounce if the sign of the drawer does not match with the account.
A detailed list of these reasons has been provided by the Reserve Bank of India in Annexure D of the Uniform Regulation and Rules for Bankers Clearing Houses.
When you fill a cheque either without the authorisation of the account holder or exceed the amount you were authorised to fill then you have committed a crime. This is known as forging a cheque.
The punishment for this offence is jail time up to two years and/or a fine.
Examples
- Mustafa took a blank cheque from Adrija and without her knowledge added in an amount of Rs. 10,000 along with falsifying her signature. He presented this cheque to the bank for payment. In this case, Mustafa has committed forgery.
- Adrija gave Mustafa a signed cheque and authorised him to put in an amount only up to Rs. 10,000. Mustafa fills in Rs. 20,000 and presents it to the bank for payment. Mustafa has committed forgery.
One of the ways in which a cheque is said to have been ‘bounced’ or ‘dishonoured‘ is when it is deposited or presented for payment but could not be encashed by the holder of the cheque.
There are several reasons why a cheque would bounce. However, not all of them amount to a crime. It is a crime if the cheque bounced either because of:
- Insufficient funds in the drawer’s account, or
- The payment for the cheque was stopped by the bank on the request of the issuer of the cheque.
Examples: ‘A’ issues a cheque to ‘B’ for Rs. 1,000. When B deposits the cheque in the bank, the bank informs him that ‘A’ does not have Rs. 1,000 in her account to pay ‘B’ with. The cheque has been dishonoured. ‘A’ issues a cheque to ‘B’ for Rs. 1,000. Before B can deposit the cheque, ‘A’ issues instructions to her bank to stop payment of the cheque without the knowledge and consent of ‘B’. When ‘B’ tries to encash the cheque, he cannot do so. The cheque has been dishonoured.
Sending a notice after a cheque has bounced.
Punishing the Issuer of the Cheque
Send a demand notice
If a cheque that you’ve received as payment has bounced, you must first send a notice to the issuer of the cheque to pay the amount that was due, along with the cheque return memo that you have received from the bank. This is known as demand notice. This demand notice must be sent within 30 days of the cheque bouncing.
Drawer has to pay
The drawer will have 15 days from the date of receiving the notice to pay you the money.
Filing a Case
Drawer replies and pays the money
In such a situation, then there is no need to file a case, as you have received the money.
Drawer replies but does not pay the money
Where the drawer replies but does not pay the money, then upon the completion 15 day period, you have 30 days to file a criminal complaint in court.
Drawer does not reply, does not pay the money
Where the drawer does not reply and does not pay the money, then upon the completion 15 day period, you have 30 days to file a criminal complaint in court.
Recovering the Money
Once your cheque has bounced, you have 3 years to file a civil case to recover the money that is due to you. Please contact a legal professional to know more about the civil procedure.
To file a case for cheque bouncing, certain conditions have to be met. You can file a civil or criminal complaint under the law if the following conditions are fulfilled:
- X owes you some money and issued a cheque to pay it.
- You presented the cheque for payment within the period of its validity (3 months).
- The bank returned the cheque and informed you that the cheque amount cannot be paid to you because it was dishonoured. The bank will give you a cheque return memo along with your cheque.
- Within 15 days of the bank informing you that the cheque has been dishonoured, you or your lawyer should send a written notice to X, demanding the cheque amount.
- X did not make payment of the cheque amount within 15 days of receiving the notice.
There can be false cheque bounce cases. It is possible that a cheque could be wrongfully dishonoured by the bank, either due to negligence or mistake on part of the bank. This amounts to the offence of ‘deficiency in service’ in consumer law.
If this has happened to your cheque then you can file a case against the bank in the consumer forum.
Dishonour of demand drafts due to the lapse or omission on the part of the bank officials. This can include things like non-affixation of signatures, failure to mention code number etc.. These have also been held to be amounting to a deficiency in service.
When a case of dishonour of cheque is filed against a company then every person who was in charge of the conduct of the business of the company, as well as the company will be held guilty of the offence. However, if the person in charge of the company proves that the cheque was dishonoured without their knowledge or that they had done their best to prevent the dishonour of the cheque then they will not be punished.
To avoid cheque bouncing, as a customer who is issuing a cheque you should:
- Ensure that the cheque has CTS 2010 written on it.
- Preferably use image-friendly coloured inks like blue and black while writing cheques. Avoid using inks like green and red.
- You should also avoid any alterations/corrections once you have written the cheque. Preferably, use a new cheque leaf if you need to make any alterations/corrections as the cheque may be cleared through image-based clearing system.
- Make sure that your signature on the cheque is the same as the signature in the bank records. Otherwise, your cheque may be declined and the bank may penalize you.
There is a specified time period for filing a complaint about cheque bouncing. You must file the case in court within one month after the 15 day notice period has expired. The Court will not entertain your complaint beyond that time period. However, if you can show sufficient cause for why you did not file within the one month period, the Court may excuse the delay and allow the case.
In a cheque bouncing case, there is a possibility for settlement out of court. When a criminal complaint is filed for a cheque bouncing case, the law allows for settlement. This is done through a legal concept called compounding of offences.
In this process, the payee/holder of the cheque agrees to not file a court case or agrees to withdraw his court case in exchange for some compensation (usually monetary).
This can happen at any stage of the court proceedings.
The law allows such an agreement to reduce litigation and burden on courts.
Cheque bouncing is both a civil and criminal offence. You can file a civil suit to recover your money as well a criminal complaint to punish the person for bouncing your cheque. The proceedings for both will happen in two different cases. You can choose to file only one case or you can file these cases simultaneously.
In a civil suit, the remedy available to you is repayment of the cheque amount along with interest. Whereas, in a criminal complaint, the defaulter/drawer of the cheque can be punished with jail time of up to two years, and/or fine up to twice the amount of cheque.
Cheque bouncing is a criminal offence and you can be arrested by the police. However, it is important to note that the police cannot arrest you without a warrant.
In most cheque bouncing cases, a warrant for your arrest is issued if you do not appear before the Court after being summoned. The crime of cheque bouncing is bailable.
In a scenario of multiple cheque bouncing cases, you can be accused of the crime of cheating under the Indian Penal Code. Then the crime is non-bailable.
Complaint to Recover the Cheque Amount
Such a complaint is a civil complaint. In order to recover your money, you need to file a money suit either in the City Civil Court or the District Court depending on how much amount you are looking to recover.
You have to file this case within three years of the Cheque Return Memo.
For further assistance in filing a money suit, please contact a legal professional.
Complaint to Punish the Issuer of the Cheque
This is known as a criminal complaint and can be filed before a magistrate where either:
For Crossed Cheques
In the area where your home branch is, i.e. branch of the bank where you have an account.
For Bearer or Order cheques
In the area where the branch of the drawee bank is, i.e. the bank from which the cheque was drawn on.
A criminal case cannot be initiated unless you have a Cheque Return Memo, hence the cheque needs to be deposited in the bank.
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