The digital payment system is gaining a lot of momentum these days, which is only an indication of country moving towards the digitization of payment with much ease and convenience. However, even though digital payments are getting big one should not forget about the process which was followed to transfer money from one bank account to another account before the digital payment system came into picture.
What is a cheque?
Before the digital payment system started, people used to withdraw and transfer money from their bank accounts using cheque. When you open an account with a bank, they issue a cheque book along with other things such as passbook, debit card and so on to the account holder. Issuing a cheque to a person or an entity is a written order to the bank to pay a specific amount of money from the drawer’s account to an entity or a person whose details are mentioned on it.
It is easy to write a cheque but one must take care of a few things before issuing it to someone else as the error might cause your cheque to bounce.
What do you mean by “Cheque Bounce” or “Dishonoured Cheque”?
A drawer issues a cheque in a bid to make a payment to an entity or a person. It is a written commitment to pay money by the drawer to the drawee. The terms “Cheque Bounce” or “Dishonoured Cheque” are used when a bank declines to honour the cheque that was used for payment.
What are the possible reasons due to which a bank can dishonour a cheque?
A bank can refuse to make payment mentioned on a cheque due to various reasons. Some of them are mentioned as follows:
- Insufficient funds in the payer’s bank account
- Signature missing or mismatch
- Account number mismatch
- Issue with the date of the cheque
- Mismatch in amount in words and numbers
- Disfigured or damaged cheque
- Crossing limit of overdraft
- Scribbling, overwriting or omissions on the cheque without authorization(signature) of the payer
- Cheque is expired
- Drawer’s account is closed
- Payment is stopped by the drawer
- Garnishee order on account
- Death or insanity of the drawer
- The seal of the company is missing on the cheque issued by an organization
- Suspicion of a forged cheque
What happens if a cheque is dishonoured by the bank?
As per the Negotiable Instruments Act, 1881, if a cheque is dishonoured by the bank due to insufficient money in the bank account of the drawer then it is criminal offense. In such a case, the drawee bank issues a ‘Cheque Return Memo’ to the payee’s bank mentioning the reason for non-payment. In turn, the payee’s bank handovers the bounced cheque and the memo to the payee.
Now the payee has the choice to either re-present the cheque within three months from the date mentioned on it or legally prosecute the drawer. If the payee proceeds with the former choice and if even the second time, the drawer fails to make the payment then the payee has the right to sue the drawer. However, the payee can sue the drawer only if the amount mentioned on the dishonoured cheque is to pay off a debt or any other liability of the drawer towards payee. The drawer cannot be sued in such cases in which the cheque was handed out as a gift or to lend a loan to the payee or for unlawful purposes.
What happens if the payee takes a legal action against the drawer?
If the payee decides to proceed legally, a chance is given to the drawer to pay the cheque amount immediately. For this, the payee is supposed to send a notice to the drawer within 30 days from the date the payee receives the “Cheque Return Memo” from the bank. The notice should state that the cheque amount must be paid to the payee within 15 days of receiving the notice.
If the drawer still fails to pay money to the payee within 30 days of receiving the notice, the payee has full right to file a criminal report against the drawer as per the Section 138 of the Negotiable Instruments Act, 1881. But the complaint or report should be registered in a magistrate’s court within a month of the expiry of the notice period.
What is the punishment and penalty related to dishonoured cheque?
The court, after receiving the complaint along with relevant documents, will start the case. If the drawer is found guilty, he/she will have to, as per Section 138 of the Negotiable Instruments Act, 1881, spend time in jail for up to two years and/or pay penalty of amount twice the cheque amount. In addition, the banks also have the right to close the guilty person’s account (on repeated bounce cheque offense) or stop their cheque book facility. The bank may also charge penalty to both the drawer and the payee for the inconvenience, extra paperwork and wasting the bank’s time.
Cheque Bounce Penalty by Popular Banks
|Cheque/bill deposited with SBI returned unpaid by others (Local/ Outstation)|
· Cheque/bill up to ₹1.00 lacs – ₹150/- + GST
· Cheque/bill above ₹1.00 lacs – ₹250/- + GST
Cheque Returned Charges for Cheques drawn on SBI (for insufficient funds only) (for all segments)
· ₹500/- + GST (irrespective of the amount)
Cheque returned charges for Cheques drawn on SBI (for technical reasons) for all segments when customer is at fault.
· ₹150/- + GST
|2.||HDFC Bank||· Savings A/c|
Inward: First cheque return in a quarter – ₹350/-. From second cheque return in the same quarter – ₹750/- per return
· Current A/c
Dishonour of Outstation Cheques
· Regular Savings
· Senior Citizen Account
|3.||ICICI Bank||Local Charges|
· Cheque deposited by customer – ₹100/- (for every cheque return for financial reasons)
· Cheque issued by customer –₹350/- (for one cheque return per month); ₹750/- per return in the same month for financial reasons. ₹50/- for non-financial reasons except for signature verification for every cheque return for financial reasons.
· Outstation cheque deposited by customer – ₹150/- + other bank charges at actuals per cheque.
|4.||Axis Bank||Return of cheques deposited at home branch for local clearing – ₹500/- per cheque|
|5.||Bank of Baroda|
Cheque (deposited by BOB’s customer and returned unpaid (Inward Return)
· Up to ₹1 lac – ₹125/-
· Above ₹1 lac to less than ₹1 crore – ₹250/-
· Above ₹1 crore – ₹500/-
Cheque (drawn on BOB) returned (Outward Return)– (Financial Reason)
· Up to 1 lac – ₹250/-
· Above ₹1 lac to less than ₹1 crore – ₹500/-
· For ₹1 crore and above – ₹750 per instrument
In case the bank remains out of funds; actual interest @ 7.5% over base rate is to be charged extra
For other reasons – ₹250/-