Cheque dishonor!, What to do?, How to recover money through legal recourse, Step by step guideline.

Today the use of cheques is quite popular for payment and transfer of money. Use of cheques have become a tradition as it’s accepted by everyone in society and in every aspect of business transaction. 

However, when any cheque (crossed account payee cheque) is dishonored or bounced and the amount remained unpaid to the payee (The person named in the cheque / Instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the “Payee”.) and cheque is returned by the bank, in such a situation how will you (if you are the payee) legally recover the money and how will you prosecute the drawer (The maker of cheque or bill of exchange, is called drawer)? 

It is advisable to receive or issue crossed cheques as “account payee only”. Furthermore, it is advisable to take legal advice from an advocate in case of cheque bouncing.

          In the case of Dishonor of cheque what to do if your (If you are payee) cheque is dishonored and amount is not received? 

The Negotiable Instruments Act, 1881 is applicable in this case. According to Section 138 of the Act, the dishonor of cheque is a criminal offence and is punishable by imprisonment of up to two years or with monetary penalty or with both. 

Section 138 Dishonor of cheque for insufficiency of funds in the account. 

 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 other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that 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 for  [a term which may be extended to two years], or with 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 a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the 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 thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) The drawer of such 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.

Following steps must be taken by payee in cheque bouncing matters;

Step 1 - When a cheque is dishonored you should immediately collect

“Cheque return memo” from the bank & memo must be sign and sealed by the authorized officer of the bank and collect the original cheque.

Step 2 - After receiving original cheque and cheque return memo from the bank , you (payee)  have  to  make a demand for the payment of the said amount of money ( cheque amount ) by giving a notice in writing , to the drawer of the cheque (within 30 days) from the date of receiving “Cheque Return Memo” / information by the bank regarding the return of the cheque as unpaid .

Note: -         1. Cheque amount has to be demanded and mentioned in the notice about the amount to be paid within 15 days from the date of receipt of the notice by the drawer.

2. Notice can be sent to drawer through Registered post with AD, or by official email id of drawer. It is advisable to avoid private courier.

3. Complete and correct whereabouts and addresses of the drawer must                  mention on the notice and on the cover page of envelop.  

Step 3 - If the cheque issuer (Drawer) fails to make the payment of demanded amount within 15 days of receiving the notice. Cause of action arises and   the payee has right to file a criminal complaint in writing within one month from the expiry of notice time period under Section 138 of the Negotiable Instruments Act

Note: -         1. The cheque is issued towards discharge of a debt or legal liability. This ingredient has to prove by the Payee in the trial. So it is advised that all relevant documents must be submitted before magistrate and same would have to be proved as witness in his evidence.

2. All the original document i.e. Cheque/s, dishonor memo, office copy of notice, postal receipt, AD receipt, Consignment report / tracing report printout, etc., has to be submitted before the magistrate along with criminal complaint.

3. Witness list has to be submitted,

4. It is also advisable to take legal help from concerned Advocate.