Cheque Bounce: How It Can Land You In Jail And Why You Should Avoid It

Cheque bouncing, also referred to as ‘dishonour of cheque’, isn’t merely an issue of finance; it’s an issue of legality that can potentially put you behind bars.

Let us look into, what is cheque bounce, why it happens, and the grave implications it brings with it. Knowing this can help you avoid these types of situations and protect your credit.

What Is A Cheque Bounce?

A cheque bounce occurs when the bank refuses to cash a cheque written by an account holder due to insufficient funds in the account. [Natural Language] Also, the Indian Negotiable Instruments Act (NI Act), 1881 governs this right where it is framed to avoid people writing a cheque without enough money with them and to evaluate the persons affected by it.

The Most Common Reasons For Cheque Bounce

The NI Act specifies that a dishonored cheque may be due to two main reasons:

Not Enough Funds: If there are no sufficient funds in the account for the amount on the cheque, it is dishonoured.

Cheque Misplaced Limits: If the amount on the cheque exceeds the agreement made between the account holder and the bank, it won’t be honored.

Other reasons have arisen over time:

Signature Or Number Mismatch: If the signature on the cheque does not match the specimen signature with the bank or, if the cheque number does not match the account number, it can be a cause of dishonour.

Cheques cannot be cashed after three months from the date of the cheque. Presenting one out of this period, one damaged or illegible shall not be honoured. If the issuer has instructed the bank to stop payment because of a dispute, suspicion of fraud, or other reasons, the cheque will not be honored.

Section 138 Of The NI Act: Cheque Bounce is a Criminal Offence Legal experts explain the possible consequences: jail time (up to two years), monetary penalties (up to double the cheque), or both penalties in some cases.

Other statutory provisions, including Sections 143A and 148, empower the trial or appellate courts to award interim compensation or make the deposit of a minimum amount as a precondition for an appeal against conviction.

Insist On Electronic Payments: Transfers online are a far better alternative to cheques and any headaches they can cause.

Utilize Relevant Legal Narratives: Recent judgments like the Sikkim High Court’s allowing compounding of offense at any stage, provide scope to bring parties on a common platform to settle matters out-of-court.

The Consequences Of Cheque Bounce: Financial and Reputational

Apart from legal implications, a cheque bounce may also bring other financial and reputational implications:

Penalty Charges: Banks can charge a penalty between Rs 50 and Rs 750.

Interest claims: If the amount of the cheque is not cashed soon, then the receiver concerned can claim interest.

Difficulty In Getting Credit In The Future: A bounced cheque can be detrimental to your credit score, making it difficult for you to access credit in the future.

Cheque bounce laws can act as a safeguard for landlords. Having signed cheques in advance helps the landlord as their rent is guaranteed and it discourages the tenant from defaulting, because of the serious legal implications.

Depending on the amount a bounced cheque is for, at some point, it becomes a criminal offense, with serious penalties including imprisonment. Following the best practices and applying legal remedies with caution would help you not find yourself in any of these situations. Ensuring financial discipline and clear communication with payees is vital in stopping cheque bounces, and protecting your brand and legal standing.