BLOG- Legal Remedies For Dishonour of Cheque

 What is a cheque?

Cheque according to section 6 of negotiable instrument act 1881, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque on an electronic form.

A cheque is a document that orders a bank to pay a specific amount of money from a person’s account (Drawer) to the person in whose name (Drawee) the cheque has been issued. A cheque is a type of bill of exchange used to make payment to another person.

Dishonour of cheque

Let us first understand what is a dishonour of a cheque. Dishonour of cheque is when the bank rejects the cheque given by the payee, basically the bank dishonours the cheque. There are many reasons for which a bank can dishonour a cheque.

According to section 138 of Negotiable Instrument act 1881, Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or another liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this act, be punished with imprisonment of [a term which may be extended to two years], or with a fine which may extend to twice the amount of the cheque, or with both.

Provided that nothing contained in this section shall apply unless-

(a). the cheque has been presented to the bank within six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b). the payee or holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, [within 30 days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c). the drawer of the cheque fails to make the payment of the said amount of money to the payee or, as the case may be,  to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Now, this is what the bare act says but let us understand this real quick and try to find out what it says. If a person has an account in a bank and he(Drawer) writes a cheque to another person ( Drawee) whether it is to repay the loan or pay some amount of money it can be anything, whether full payment is being done or half payment or some amount of money is being paid it does not matter, and that cheque after being submitted in the bank is returned by the bank unpaid, this now is the dishonour of cheque.

There can be various reason for the dishonour of cheque:-

1. Insufficient Fund:- In these cases, the amount of money present in a bank account is less than what it is written in the cheque, the bank was not able to pay and the bank dishonoured it.
2. More than what has been agreed:- It is also possible that amount written on the cheque is more than what bank and the account holder both have been agreed off.
3. Account closed/ No Account:- It is also possible that the Drawer has closed the account in that bank or the bank has closed drawer’s account or the Drawer had no account in that bank.
4. Stop payment:- The drawer after giving the cheque can also instruct the bank to not to pay to that person. The drawer himself stops the bank from paying.

Now let’s see a case law which will make us more clear about the dishonour of cheque.

1. Devan vs C. Krishna Menon 2010

Four cheques each of Rs. 4.4 Lakhs were presented in front of bank and bank dishonoured it on two grounds “ wrong signature and insufficient fund”. The insufficient fund was the main issue here the case went on to the court. The court decided after a series of hearing that the defendant should pay four cheques of Rs. 7.5 Lakhs. ( Source: Indian Kanoon).

     2. Mayuri Pulse Mills vs Union of India 1994

In this case, two cheques drawn on the State bank of Hyderabad, Amravati, for payment of a sum of Rs. 1,11,780. The said cheques were deposited for collection in the account of the complainant with the Punjab National Bank, Amravati branch, but the said cheques were returned unpaid with an endorsement “Exceeds arrangement”. Later the case was filed. ( Source: Indian Kanoon).

Legal Remedies in Case of Dishonour of Cheque

There are various remedies given by the government in case of dishonour of cheque. The government wanted people to believe in cheque and accept it as a method of payment. The government made sure that people do not lose their faith in cheque and its use.

Now there are some steps which a person need to follow in the case to get legal remedies from court.

1. The Drawee has to deposit the cheque to the bank within 3 to 6 months from the date it has been issued.
2. After the cheque has been dishonoured, the drawee will receive the original cheque and a memo in which the reason for the dishonour of cheque will be given.
3. The drawee, within 1 month of receiving the memo from the bank has to send a notice in a written form to drawer informing about dishonour of cheque and to make payment to the drawee within 15 days.
4. If still the payment is not done within 15 days then the drawee can file a case against the drawer.

Once the case is filed the case goes to Judicial Magistrate 1^st class and Metropolitan Magistrate. To register the case you have to furnish these four documents:- 1.Copy of original cheque, 2.Return memo, 3.Demand Notice and 4. Postal receipt if the notice which was sent to the drawer. If all these documents are present then the case can be filled.

In case of a court case, the drawer can face severe consequences like the imprisonment of 2 years or double the amount which was fixed originally or both. In the court case parties can also solve the dispute outside of the court by reaching to a settlement once the drawee has received his money, this can also be done even if the case is registered because the ultimate goal of the court is to make sure that the drawee receives his money. The drawer can also be charged any interest if the case demands.

This blog is written by Vaibhav Prakash, Shyambazar law college.