One of the frequent financial offences that can place the issuer in legal problems and harm their credit is a bounced check. There are a lot of court cases in India that include check bounce offences that are still unresolved. A check bounces if the issuer writes a poor check, whether for technical reasons such a mismatched signature or overwriting, when there are not enough money in the account as a result of the bank not processing the check, or both. After then, the check is returned unpaid or dishonoured. Serious consequences may result from repeated offences. A significant check bounced charge or even a jail sentence might be imposed on the offender. Your account might be closed or the bank could cease allowing you to use chequebooks.
How can you file a Criminal Complaint if a Check Bounces?
- Within three months of the check’s issuance or during the time that it is valid, deliver the check to the bank. (Previously, the validity of checks was thought to be six months; however, the Reserve Bank of India instructed that the validity period of checks be decreased from six months to three months with effect from April 1, 2012, in Notification No. RBI/2011-12/251DBOD.AML BC.No.47/14.01.001/2011-12.)
- After the check is returned unpaid, the payee (the person who receives the money) ought to have sent a registered notice demanding payment to the payor (the person who is responsible for making the payment).
- Within 30 days of receiving the warning, the Payor was supposed to have missed the payment deadline.
- Only on satisfying all the above three conditions, the prosecution can be launched for the offence under Section 138.
The Effects of Check Bounce in India
If a check is dishonoured (cheque bounces) due to insufficient money in India, the person who issued the check will be charged with a crime. Cheque bounce offences are punished by up to two years in jail, a fine equal to double the value of the check, or both. Therefore, it’s crucial for small and medium-sized enterprises to be aware of their rights and obligations in the event that a check bounces and to practise sound money management to prevent such occurrences.
- Filing a Criminal Complaint
When a cheque bounces the first time, the bank issues a ‘cheque return memo’, stating the reasons for non-payment. The holder can resubmit the cheque to the bank within three months of the date on it, if he believes it will be honoured the second time.
The alternative would be to legally pursue the defaulter. Within 30 days of receiving the check return memo, a legal notification must be sent to the defaulter. The notification must include all pertinent information regarding the case, including the kind of transaction, the amount, the date the instrument was deposited in the bank, and the date the dishonouring really occurred. The payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act if the cheque issuer does not make a new payment within 30 days of receiving the notification.
- Bank Penalty
When a check bounces, the defaulter and the payee are both assessed fees by their respective institutions. If the failed check was intended to pay back a loan, you would also be responsible for paying late fees on top of the bank’s penalty penalties. Some consumers utilise their overdraft account, which the banks reimburse for checks that would otherwise bounce. On the unpaid balance of an overdraft loan, the consumer is responsible for paying interest.
- Bad Impact on Credit Scores
It’s crucial to make sure your account has enough money before applying for a house loan. The bank could reject the approved loan right away if the processing fee check bounces. Therefore, make sure you consistently maintain the minimal average amount and steer clear of any irregular or unexpected bank activities. Repeated check bounces might harm your financial credit history and make it difficult for you to get loans in the future.
Only in cases where a pending obligation or duty can be firmly proven, are these legal remedies accessible. Therefore, the bearer of a bounced check cannot lawfully sue the defaulter if the cheque was written as a contribution or gift.
- Defaulters are at Risk
The issuer of a returned check may also be subject to jail time or other severe penalties. For repeated instances of bounced checks, the bank has the power to discontinue the chequebook function and cancel the account. However, the RBI is quite clear that such action may only be taken if the default has occurred on checks worth more than Rs 1 crore at least four times.
- Facing A Civil Lawsuit
In a check bounce case, a second civil lawsuit is often launched in order to recover the money owed, including the costs incurred and any missed interest, as bringing a criminal prosecution has no effect on collecting the outstanding debt. However, under Section 420 of the Indian Penal Code, the party that feels mistreated may launch a cheating case. The notified Negotiable Instruments (Amendment) Act, however, allows the complainant to do so in the city where he resides or the location of the check’s deposit. The victim will find it simpler to pursue legal action as a result.
How can I prevent check bounces?
Never writing a check without funds in your account is the greatest practise for preventing a cheque bounce. A person can make a strong financial commitment to another person by giving them a check, which comes with a number of obligations and consequences if it is not honoured. In order to prevent financial strain momentarily, it is better to avoid writing a check to someone who does not have money in their account.
It’s a good idea to monitor your available balance and keep some additional money in your account as a safety net. If you discover that there is not enough money in your account, you can notify the payee in writing, cancel the payment at your bank, or deposit money into your account before the cheque’s due date.