Cheque Bounce Legal Notice in India: Format, Timeline and Detailed Procedures

A bounced cheque can hurt businesses financially and legally. In India, for instance, it is a legal offense not to have sufficient balance in the account from which the funds are withdrawn. Therefore, it is extremely important to know the process of sending a legal notice for cheque bounce.

Some individuals might use cheques for payment purposes, either in a business or for personal use, and it is equally essential for them to know what to do if a cheque bounce legal action is required. In this article, we will explain the term cheque bounce, the legal provisions involved, what constitutes a legal notice and the timelines involved in the process.

1. Cheque Bounce Definition

A cheque bounce occurs where a client presents a cheque for payment but the bank refuses to honor the payment. Some of the reasons include:

Not enough balance within the account
Signature not matching or is forged
Account closed
Cheque stale (older than three months)
Overwriting or obscured writing on cheque

Even though it can be construed as a simple banking problem, it is important to note that in India, a bounced cheque issued against a genuine payment obligation can render the issuer criminally liable.

2. India’s Legislation on Cheque Bounce Overview

India’s only legislation on cheque bounce cases is Section 138 of the Negotiable Instruments Act of 1881. This section deals with the criminal liability of the drawer for cheque bouncing due to lack of funds in the account or if the account is overdrawn beyond the agreed limits.

In the event that you would like to take action under Section 138, the following must have occurred:

The cheque in question must have been issued in exchange for a legally enforceable debt or liability.
It was presented within its validity period which is three months in most cases.
The cheque was returned unpaid due to insufficient funds or lack of sufficient balance in the account.
A legal notice demanding payment must have been served within thirty days of the receiving the return memo from the bank.
The drawer fails to effect payment within fifteen days after receiving the cheque return memo.

Only upon fulfilling all such requirements can you initiate a complaint of contravention of Section 138.

3. What Circumstances Allow Serving Legal Notice For Cheque Bounce?

Legal notice can be served only after the cheque is dishonoured by the bank and you have in your possession cheque return memo stating the reasons for the cheque non-payment.

Before proceeding, you're required to do the following:

Make sure the cheque was presented for payment not more than three months from its issued date.
Check that the reason for dishonour is something you can take action on legally (like insufficient funds).
Send your legal notice no later than thirty days from the time you received return memo.

4. The Timeline To Remember: Key Timeframes Under Section 138

While there are a series of deadlines to meet here, it is imperative to observe all of time-bound actions, including submission and notice periods, and skipping any of them would render your complaint ineligible. Here is a set of dates to work with:

Present the cheque for payment: Not less than 3 months from its issuance date
Dispatch the legal notice: Not more than 30 days after the return memo.
Wait 15 days: After serving the notice for payment.
Lodge a complaint: Not more than 30 days after the 15 days grace period.

In case the drawee makes payment during the grace period, that will be the end of the matter. If not, that means you will then be able to lodge a compliant without facing any restrictions.

5. Creating a Legal Notice for Cheque Bounce

A legal notice for cheque bounce should be etched professionally and articulate each section smoothly. It must include:

Drawer's and payee's full names, addresses, and contact information.
Cheque specifics: number, date, value, and the issuing bank.
Reason for cheque bounce and associated date.
Reference the obligation the cheque clears.
Urgent demand for payment within 15 days post-notice.
Payment refusal consequences.

Templates might exist, but it’s best to seek professional advice to deal with compliance issues and to strengthen one’s standing in court.

6. Steps After Issuing the Legal Notice

Legal notice documents must be sent via registered post or tracked couriers for proof of dispatch. After this step, a period of 15 days grace period commences.

Repayment results in resolution of disputes, however, criminal complaint can be issued in Magistrate's court without further justification or revisit after a week upon expiry of the grace period.

Below are some of the documents that may be required at this point:

Original bank cheque
Return memo from the bank
Legal notice copy
Proof of delivery, such as a postal receipt or tracked courier shipment

This complaint is time sensitive and must be submitted within 30 days of the 15-day expiry period.

7. Possible Defenses by The Drawer

The drawer in question can present these common defenses if the case advances to litigation:

The cheque was intended as collateral and not as payment.
No legally enforceable obligation existed at the time of cheque issuance.
The cheque amount was inaccurately stated, or there were unsubstantiated charges.

Indian courts do tend to heavily lean on the assumption that payment cheques will be issued as valid payments unless proven otherwise by the drawer.

8. Consequences for The Drawer If Found Guilty

If found guilty under Section 138, the drawer may face:

Up to 2 Years imprisonment.
Payment of fine which could be up to two-fold the bounced cheque’s value.
In certain scenarios, the court may permit settlement or other compensatory agreements.

Apart from these criminal sanctions, the payee has the right to seek civil action to claim the outstanding balance.

9. Steps for Avoiding Check Bounce Dispute

If You’re the Drawer (Cheque Issuer):

Always make sure that funds are available in your account.
Do not issue cheques when there are doubts regarding payment dates.
Ensure that there is a written record of all cheques issued along with due dates.

If You’re the Payee (Cheque Recipient):

Present the cheques within the stipulated time frame.
Maintain files of relevant payment documents and contractual agreements.
Keep copies of all correspondences with the claimant and the delivery of the notice.

Concluding Remarks

Although cheque bouncing seems like a procedural issue, in reality, it has significant legal consequences in India. Adhering to proper procedures and timelines can significantly enhance the prospects of an effective legal remedy.

Whether you are engaged in business activities or managing personal dealings, knowing how to serve a legal notice for cheque bounce is fundamental. And in these situations, it's preferable to consult a qualified attorney.

By taking proper action today, you can save yourself from complicated situations tomorrow.

Disclaimer: The information contained in this document is provided for general informational purposes only and does not constitute legal advice or a legal opinion. No part of this document should be relied upon or used as a substitute for consultation with qualified legal professionals. Legal Parihar expressly disclaims any and all liability for any loss, damage, or harm arising from reliance on the information contained herein, whether due to errors, omissions, negligence, or any other cause.