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What
are the remedies
available in case a cheque issued to me has dishonoured?
In the event that
a cheque issued to you in repayment of a debt/obligation has been
dishonoured, then you have the option of launching either civil,
criminal or both civil and criminal proceedings against the person
who has issued the cheque to you. Civil proceedings can be
launched on grounds of breach of contract (ie non fulfillment of the
issuer’s contractual obligation to pay you), or under any specific
law which governs that relationship.
In addition to this, you also have the right to initiate
criminal proceedings against the issuer of a cheque, if the cheque
issued by him bounces. This
is often, a very effective and expeditious remedy and is resorted
to, in most cases.
What
constitutes a “dishonour
of a cheque” in order to initiate action under Section 138 of the
Negotiable Instruments Act?
Courts
have interpreted the following grounds as constituting a "dishonour
of cheque" ---
That there is insufficiency
of funds in the account;
·
The
amount of the cheque exceeds the agreement made with the drawer;
·
The drawer of
the cheque issues instructions to the bank for stop payment;
and
·
Closure of a
Bank account
And
in all the above instances the courts have held that the said act
would constitute a " cheque having been dishonoured" and
proceedings initiated against the issuer of the cheque under Section
138 of the Negotiable Instruments Act were upheld.
In
a recent case, the endorsement "refer to drawer" bearing
on a dishonoured cheque also means a cheque was dishonoured for want
of funds.
What should a person do to
if a cheque has been dishonoured and wants to take legal
action?
The
holder of a cheque can file a criminal complaint in the court of a
Magistrate for an offence of dishonour of cheque if the following
conditions are satisfied:
·
The cheque was
issued to him in discharge of debt or liability, and
·
The cheque has
been presented to the bank within 6 months from the date of issue or
within the period it’s validity whichever is earlier, and
·
The holder of
the cheque gives a notice of such dishonour in writing to the drawer
of the cheque, within 15 days of the receipt of information from
bank regarding the return of cheque as unpaid, and
·
The drawer of
the cheque fails to make the payment to the holder of the cheque
within 15 days from the receipt of such notice, and
·
The person
makes the complaint to the Magistrate within a month thereafter.
What
are the essentials of a notice to be given to the issuer
regarding the dishonour of the cheque?
No
form of notice is prescribed for this purpose. The main requirement
is that notice shall be given in writing within fifteen days of
receipt of information from the bank regarding return of cheque as
unpaid. Further, in the
notice, demand for payment of amount of cheque has to be made. The
Supreme Court has held that it is enough that the notice mentions
the exact amount of the cheque and a demand for the amount.
Which
court has jurisdiction to decide a matter of
dishonour of cheque?
A
complaint of dishonour of cheque can be made in the Court of the
Metropolitan Magistrate or Judicial Magistrate. The complaint can be
filed before the court which has jurisdiction over any of the
following places: -
·
The place where the cheque
was drawn, or
·
The place where the cheque
was presented for encashment, or
·
The place where the cheque
was returned unpaid by drawee bank, or
·
The place where notice in
writing was given to drawer of cheque demanding payment, or
·
The place
where drawer of cheque failed to make payment within 15 days of
receipt of notice.
What
is the punishment that will be awarded?
A person who
is guilty of dishonour of cheque shall deem to have committed an
offence and shall, without prejudice to any other provisions of this
Act, be punished with imprisonment for a term which may extend to
one year, or fine which may extend to twice the amount of the cheque,
or with both.
Who
is liable in case a cheque issued by a company is dishonoured?
If
the person committing the offence is a company, every person who, at
the time the commission of the offence was in charge of and was
responsible to the company, for the conduct of the business of the
company, as well as the company itself, shall be deemed to be guilty
of the offence.
Where
any of offence under this Act has been committed by a company and it
has been proved that the offence has been committed with the consent
or connivance of, or is attributable to any neglect on the part of
any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be
deemed to be guilty of that offence. The burden will lie on that
person to prove that the offence was
committed without his knowledge or that he had exercised all due
diligence to prevent the commission of such offence.
Can
civil proceedings be launched simultaneously?
There
is no bar to simultaneously launching civil and criminal proceedings
against the offender in cheque bounce cases.
The complainant can therefore, choose the type of remedy that
appears most efficacious to him under the circumstances, and can
also opt to proceed against the issuer of the cheque in both the
civil and criminal courts.
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