Bounced Promises: Analyzing The Consequences Of Dishonoured Cheques

Jai Ganesh. B (Advocate at Madurai Bench of Madras High Court).

ABSTRACT

The cheque despite being a very old system of transfer of cash still remains as an integral part of the banking and finance system. The Negotiable Instruments Act of 1881 is the legislation that deals with the law related to various “negotiable instruments like promissory notes, bills of exchange and cheques”. “Section 138 of the Act deals with the dishonour of cheque” it specifically mentions the elements that must be present to conclude that a cheque can be said to be dishonoured.

A cheque transaction involves a minimum of three parties, the person who drafts the cheque called as the “drawer and the person in whose favour it is drawn is known as the payee” and the bank to which the cheque is to be presented is called as the drawee. A cheque is said to be dishonoured when the drawee bank refuses payment on any of the valid grounds provided by law along with a cheque return memo. The most common reason for a cheque return is the insufficiency of “funds in the account of the drawer”. However, a notice and opportunity will be given to the drawer to pay the amount failing which it will be a dishonour of cheque.

The dishonour of a cheque or commonly known as cheque bounce is a criminal offence with criminal liability under “Section 138 of The Negotiable Instruments Act, 1881 and Section 420 of the Indian Penal Code”. A person held liable for the dishonour of a cheque may be imprisoned for a term not exceeding two years or may be directed to pay twice the amount mentioned in the cheque. This research paper analyses and describes when a cheque can be said to be dishonoured and what are the consequences and legal remedies available for the offence.