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 such as the net banking, RTGS, NEFT and wire transfers- cheques have not lost utility, relevance and importance even in today’s world of electronic communication and business. Cheques are an efficient and economical method of transaction between the business entities and individuals alike. The transaction through cheques are practically free.
2. 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 use 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 retailers are made to the manufacturers, distributors or up the 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 goods 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 blocking of the 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 terms, the aggrieved party may present the security cheque for credit and institute a criminal case under Section-138 of the Negotiable Instrument Act and Sections-406, 420 of the Indian Penal Code. In most cases parties honour their mutual terms of agreements and make the payment to avoid the criminal case, if the whole deal is secured through a security cheque. Presence of a security cheque in any business contract enables filing of a criminal case against the defaulting party issuing the cheque as a security/contingency. In the absence of a security cheque the only remedy to recover the agreed payment is through a civil suit which needs input of much time, effort and energy and going through complex procedures and rules of evidence. Whenever a business credit transaction is backed by the security of a cheque, a prima facie case, obviating further proving of the liability is available to the party holding the said security cheque. This in itself a game changer for success in business recovery litigation.
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 in order to put the other party under the risk of criminal case in the eventuality of wilful default of the payment, whether or not the credit supply of goods is one time, repetitive and/or long term.
Aggrieved party may launch criminal prosecution against the defaulting party by issuing legal notice for bouncing of the cheque for any reasons. We would mention a reminder here. 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 dispatched 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.