Section 138 of the Negotiable Instruments Act, 1881 is the primary law in the context of cheque bounce cases. The following is an analysis of the rights and remedies existing in cheque bounce cases.
Resubmission of the Cheque
Pursuant to the cheque bouncing, on being informed, the issuer of the cheque has an opportunity to rectify the error which has caused the cheque bounce and ask the payee to resubmit the cheque for clearance. This can be done within 3 months from the date on which the cheque bounced. The recipient of the cheque is informed by his bank about the bouncing of the cheque through the issue of a “cheque return memo” which contains the reasons for non-payment of the money stated in the cheque. In order for a person to make a valid claim, such a person must ensure that they submit the cheque to the bank within three months from its date of issue, otherwise, the cheque would expire.
Demand Notice
In the event that the cheque bounces for the second time, the recipient of the cheque has an option to send a demand notice to the issuer of the cheque. The demand notice usually asks the issuer to transfer the requisite funds within a period of 15 days, failing which the recipient would file a complaint under Section 138 of the Negotiable Instruments Act. This demand notice has to be sent within 30 days of receiving the bounced cheque from the bank. The court may consider a delay if a justifiable reason is provided.
Filing a Complaint
In the event that the issuer of the cheque has not replied to the demand notice or complied with the terms of the same, the recipient has an option of filing a complaint before the courts within a period of 30 days. With respect to jurisdiction, the courts situated in locations, where the cheque was drawn, where the cheque was presented and/or returned by the bank, have jurisdiction. A complaint under Section 138 can also be filed against a company. It must be noted that cheques which are issued as gifts are not covered by Section 138 of the Negotiable Instruments Act.
Pursuant to the Complaint being filed and the requisite court fees being deposited with the court, the original documents such as the original cheque, a copy of the notice and acknowledgement receipt are to be verified by the Judicial Magistrate First Class. The complainant would have to appear in court and be examined by the Magistrate. The Magistrate would issue a summons for the issuer of the cheque to appear before the Court and if found guilty then the issuer would be punished with imprisonment or fine under Section 138 of the Negotiable Instruments Act. In addition to pursuing remedies through this method as well as the civil proceedings as demonstrated below, the recipient of such a cheque can also file a complaint about cheating under Section 420 of the Indian Penal Code.
An Alternate Civil Complaint
The nature of the complaint as described in the above sections is that of a criminal complaint, which could possibly result in punishment to the defaulter in terms of jail time but often does not result in the recipient of the bounced cheque getting his dues. Thus, it would be prudent for the recipient to file a separate civil suit for the recovery of the amount due to him.
This can be done through filing a summary suit under Order 37 of the Code of Civil Procedure, 1908. A summary suit differs from an ordinary civil suit in as much as it does not grant the defendant with a right to defend himself and in order to be able to defend himself, the defendant has to seek prior permission of the court. Summary suits are only permissible in the context of matters of recovery. Thus, in matters of cheque bounce, a summary suit can be filed for the recovery of money.
Punishment
In addition to the risk that a defaulter faces in terms of jail time or penalty, it is also open to the bank from which the defaulter has issued the cheque to stop the defaulter from using its facilities and to possibly close the account.