Dishonour of Cheque

Topic: Dishonour of Cheque: Legal Perspective and Remedies in India

Dishonour of a cheque is a prevalent issue in financial transactions, often causing significant disruptions in both personal and business dealings. Under Indian law, dishonouring a cheque is governed by the Negotiable Instruments Act, 1881, which provides legal remedies to the aggrieved parties.

Let us delve into the legal details surrounding cheque dishonour, the procedures, and the remedies available.

What Constitutes Cheque Dishonour?

A cheque is said to be dishonoured when it is presented to the bank for payment, but the bank refuses to honour it. The reasons for dishonour may include:

1. Insufficient Funds: When the account balance is inadequate to cover the cheque amount.
2. Signature Mismatch: Discrepancy in the drawer’s signature.
3. Post-Dated Cheque: Presented before the due date.
4. Account Closure: The account linked to the cheque is closed.
5. Stop Payment Instructions: Drawer instructs the bank to halt the cheque payment.
6. Alteration of Cheque: Visible overwriting or tampering.

Legal Provisions for Cheque Dishonour

Section 138 of the Negotiable Instruments Act, 1881

Section 138 lays down the criminal liability for dishonoured cheques due to insufficient funds or reasons indicating the inability of the drawer to pay.

Essential Conditions Under Section 138:

• The cheque must be drawn for discharge of debt or liability.
• The cheque must be presented within 3 months (or the validity period mentioned).
• A demand notice must be issued within 30 days of dishonour.
• The drawer must fail to make the payment within 15 days of receiving the notice.

Failure to comply with these conditions empowers the payee to initiate legal proceedings.

Penalties under Section 138:

• Imprisonment up to 2 years and/or a monetary fine, which may extend to twice the cheque amount.

Procedure for Filing a Case

1. Issue of Legal Notice:
   The payee must send a legal notice to the drawer, demanding payment within 15 days.
2. Filing of Complaint:
   If the drawer fails to respond or pay, the payee can file a complaint in the appropriate magistrate’s court within 30 days after the lapse of the notice period.
3. Court Proceedings:
   The case will proceed as a criminal trial, and the burden of proof initially lies on the complainant.

Civil Remedies

Apart from criminal proceedings under Section 138, the aggrieved party may file a civil suit for:

• Recovery of the cheque amount.
• Compensation for damages due to non-payment.

Defenses Available to the Drawer

The accused (drawer) may defend against the cheque dishonour complaint by:

1. Proving that the cheque was issued without consideration.
2. Showing that the debt was not legally enforceable.
3. Demonstrating that the cheque was misused or stolen.

Landmark Judgments on Cheque Dishonour

1. M.S. Narayana Menon v. State of Kerala (2006)
   The Supreme Court clarified that the presumption under Section 139 of the Act (regarding the cheque being issued for discharge of debt) is rebuttable.
2. C.C. Alavi Haji v. Palapetty Muhammed (2007)
   The Court emphasized that the drawer cannot evade liability simply by avoiding the receipt of the legal notice.

Preventive Measures to Avoid Cheque Dishonour

1. Maintain adequate balance in the account.
2. Regularly update bank records to avoid signature mismatches.
3. Avoid issuing blank cheques or leaving them unsigned.
4. Cross-check post-dated cheques before issuance.

Conclusion

The dishonour of a cheque can significantly impact financial credibility and lead to legal repercussions. Indian law provides robust mechanisms for protecting the rights of aggrieved parties while ensuring fair trial for accused individuals. Awareness of these legal provisions, coupled with cautious financial practices, can help mitigate the risks associated with cheque dishonour.

For professional legal assistance or queries, feel free to contact Narendra Madhu Associates, a trusted name in litigation and non-litigation services.