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Sakshi Jaiswal
Intern At ubAdvocate-   / ubadvocate  
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What to do, When Cheque bounce?

ESSENTIAL FOR AN ACTION UNDER SECTION 138
There should be dishonour of cheque
Section 138 makes dishonour of cheque in certain cases an offence. Cheque is the most common mode of making the payment. In order to duly protect the interest of its payee, holder in due course, there is an attempt to discourage dishonour of a cheque by making it an offence. These provisions do not cover the dishonour of other negotiable instruments.



Payment in discharge of debtor liability
The cheque should have been drawn by a person on an account with a banker for payment of money to another person for the discharge, in whole or part, of any debt or other liability.

The debt or other liability in such a case means a legally enforceable debt or other liability.

If the payment by way of cheque is made as gift or charity, it is not the payment for legally enforceable debt or liability. The dishonour of such cheque does not attract the provisions of Section 138 of the Negotiable Instrument Act.



Presentment of the cheque within the period of its validity
It is further necessary that the cheque has been presented before it became stale and invalid. It means that the cheque has been presented within a period of 6 months from the date on which it is drawn or within the period of validity, whichever is earlier.



Dishonour due to insufficient fund
It is also necessary that the cheque should be returned by the bank unpaid.

Dishonour may be because of 2 reasons:

Either the amount of money present in the account is insufficient
Or the amount to be paid has exceeded the amount to be paid from that account as in the agreement made with that bank.
It has been generally held in various cases that dishonour due to the insufficiency of funds has to be interpreted liberally. Dishonour due to the remarks like “Account closed”, “Refer to the drawer” or “Stop payment” of the cheque may be deemed to be covered by the provision contained in Section 138 of the Act.



Notice and demand from the drawer and drawer’s failure to pay
Within 15 days of receipt of information from the bank about the dishonour of the cheque, the payee or holder in due course of the negotiable instrument, as the case may be, must make a demand of the said amount from the drawer by giving a notice in writing.

Inspite of such a notice the drawer of the cheque should fail to make the payment of the said amount of money to the payee or the holder in due course of the cheque, within 15 days of the receipt of the said notice.

In the case of TomyJacob Kattikaran v. Thomas Manjaly A.I.R 1998 S.C. 366

The Supreme Court has held that if it was established that the appellant did not serve a notice on the drawer within the period prescribed under Section 138 of the Act, the acquittal of the drawer is justified.

CIRCUMSTANCES IN WHICH A BANKER IS JUSTIFIED IN DISHONOURING CUSTOMER’S CHEQUE
PAYMENT COUNTERMANDED BY THE DRAWER
When the cheque drawer of the cheque countermands the payment, that is it issues the instruction to the bank not to make the payment. On receipt of a valid stop payment order, the cheque must be returned unpaid with the remark “payment countermanded by drawer“



NOTICE OF DRAWER’S DEATH
On receipt of the confirmed news of death of account holder, cheques signed by him should be returned unpaid with the remark “Drawer deceased”.



NOTICE OF CUSTOMER’S INSANITY
Where the account holder is certified as insane by a recognised medical practitioner then the cheques signed by him should be signed by him should be returned unpaid.



NOTICE OF CUSTOMER’S INSOLVENCY
Where a customer is adjudged insolvent, the banker must refuse to pay cheques drawn by the customer.



LIQUIDATION OF COMPANY
When a bank receives notice from the liquidator in accordance with the provisions of Companies Act, requiring to pay the balance to liquidator’s account , all the cheques by the companies should be returned unpaid.





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