Cheque Bounce Cases

Cheque Bounce Matters

1. Cheques have always served a great purpose in conduct of business ever since the banking systems came into existence. Despite availability and options of electronic transfer methods net banking, RTGS, NEFT and wire transfers- cheques have not lost utility, relevance and importance even in today’s world of business. Cheques are an efficient and economical method of transaction between the business entities and individuals alike. Practically the transaction through cheques are free.

2. But in our view the cheque serve a bigger purpose when used as a security in business or personal transactions. Bank guarantee is another option but attracts an equal amount of collateral security before its issue by any bank or financial institute. A party offering cheque need not incur any cost or deposit in order to a cheque as guarantee of payment in any business or personal transaction.

3. Most of the business in India runs on credit and payments by retails are made to the manufacturers, distributors or up chain suppliers only once the earlier stocks have been sold off and next round of supplies is to be obtained. The cycle is completed once the retailer has sold a major chunk of the goods or services that he is dealing with and needs a replenishment or fresh supply of the goods.

4. In order to safeguard and secure the payment of good or services delivered on credit to any party it is advisable that the party offering the credit, secures itself in respect of the payments for such credit supplies. In most of the cases retailers simply decline to give bank guarantee or other security for various reasons including the blocking of capital and charges for the transaction. Cheque is the best tool in such cases to ensure sanctity of the oral/written contract and the terms agreed between the parties. In case of non- payment according to the payment term the aggrieved party may present the security cheque for credit and institute a criminal case under Sectio-138 of the Negotiable Instrument Act and Sect-406, 420 of the Indian Penal Code. In most cases parties make the payment to avoid the criminal case if the whole deal is secured through a security cheque.

In our view all business transactions where terms of payment are unavoidably on credit basis the transaction must be secured through a properly drawn out cheque but without date if the credit supply goods is repetitive or long term in order to put the other party under the risk of criminal case in the eventuality of wilful default of the payment.

Aggrieved party may launch criminal prosecution of the defaulting party by issuing legal notice for bouncing of the cheque for any reasons other than technical. Just a brief reminder that now the cheque can only be presented for credit within a period of 90 days from the date written on the same. A format of legal notice is given out in this web site for benefit of the users who may appropriately fill in their particulars or approach us for service of notice which has to be despatched within 30 days from the date of receipt of the cheque return memo from the bank. In case the drawer of such cheque fails to make payment within 15 days from the date of receipt of the said notice, a criminal prosecution needs to be initiated through a written complaint within 30 days from the date of elapse of 15 days period for payment given to the drawer herein above.