In India, check bounce situations are fairly prevalent. A cheque is a bill of exchange made on a specific banker and payable upon demand. When a check is presented for payment but is unable to clear due to factors like insufficient funds in the account, the check’s validity having expired, among other things, or overwriting, it is said to have bounced or been dishonoured.
A check is considered to have bounced for a variety of reasons, including overwriting, inadequate account balance, and expired check validity. According to the Supreme Court, check bounce claims are extremely frequent. When a check is returned unpaid, the drawee bank is required to send a “Cheque Return Memo” right away to the payee’s banker, stating the reason why. A bounced check notice is a formal document that explains why the party wasn’t paid right away.
Within three months of the check’s date, the holder or payee is free to reissue it. Here, we’ll attempt to analyse the various legal rights at stake in cases of check bounces.
Negotiable Instruments Act, 1881- Section 138
The main legal framework for issues involving bounced checks is this section. Below is a breakdown of the rights and options available in cases of check bounces:
Resubmission of the Cheque:
At Cheque bounce case, the issuer of the check has the chance to fix the problem that caused it and can then demand that the payee resubmit the check for clearance. Within three months after the date the check bounced, this action may be performed. By sending a cheque return memo” that includes the reasons why the money on the check was not paid, the bank notifies the recipient of the cheque that the cheque has bounced. A person must submit the check to the bank within three months of the date it was issued in order to make a claim that is valid;
The beneficiary of the check has the option to send a demand notice to the cheque issuer if the check bounces again. Typically, the demand notice requests that the issuer transfer the required amounts within 15 days. The recipient has the right to protest under Section 138 of the Negotiable Instruments Act if the issuer doesn’t comply. Within 30 days of receiving the bank’s bounced check, this demand notification must be submitted. In the event that a good justification is offered, the court may take the delay into account.
Filing a Complaint:
The recipient has the option of filing a complaint with the courts within 30 days if the check’s issuer has not responded to the demand notice or complied with the conditions of the transaction. The courts with jurisdiction over the case are those situated in the places where the check was drawn, presented, and/or returned by the bank. A company can be the target of a complaint made under Section 138. The important thing to remember is that Section 138 of the Negotiable Instruments Act does not apply to checks that are issued as gifts.
An Alternative Civil Complaint:
The complaint’s character is similar to that of a criminal complaint, which may result in the defaulter being punished with jail time but frequently does not lead to the beneficiary of the bounced check receiving his rightful compensation. Therefore, it would be wise for the beneficiary to file a separate civil lawsuit to recover the money owed to him.
A summary lawsuit under Order 37 of the Code of Civil Procedure, 1908, may be filed to accomplish this. A summary lawsuit is different from a regular civil lawsuit in that the defendant does not have the right to self-defense. Additionally, the defendant must first get authorization from the court in order to be allowed to defend himself. Only in the context of situations involving recovery are summary lawsuits permitted. In order to recover the money in cases of cheque bounce, a summary lawsuit may be filed.