In simple words, dishonour of cheque means that the cheque in question is not honoured by the bank, on which it is drawn for whatever reason. Cheque plays an important role in the business community and otherwise also as a safe mode of transfer of money from one person to another.
When there is a default on the part of the drawer of a cheque in discharge of its legally enforceable debt or other liability to the payee of the cheque as a result of which the cheque is dishonoured due to insufficiency of funds or if the amount exceeds the amount in the bank of the drawer, the legal remedy, available to the payee of the cheque is to proceed under Section 138 of the Negotiable Instruments Act. Bouncing of a cheque invites criminal prosecution under the Act and is a punishable offence and the drawer/signatory of the cheque can be punished with imprisonment for a term which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or with both. It is to be noted that Proceedings under Section 138 N.I. Act is an alternate remedy. An aggrieved party can also simultaneously initiate proceedings before the Civil Court for Recovery.
If the drawer is an individual, the proceedings would happen under Section 138 of the NI Act. If the drawer is a Company, its managing director, Whole Time Director and other officers/Directors of the Company who are actively involved in the transaction, pursuant to which cheque is issued, can be personally prosecuted under Section 141 of the Act also.
In the event of Insolvency Proceedings being initiated against the Accused Company, Cheque Bounce Complaint can be continued and there is no automatic stay of the proceedings.
To constitute an offence under Section 138 of the Act, the following ingredients are required to be fulfilled:
The Complaint can be filed only in a Court within whose local jurisdiction the bank branch of the payee, where the payee deposits the cheque for payment through his account, is situated, except in case of bearer cheques, which are presented to the branch of the drawee bank and in that case the local court of that branch would get jurisdiction.
In case the Complaint is to be filed:
In case of accused:
The proceedings under the cheque bounce matter are summary in nature, meaning, thereby that the Courts would not go for normal criminal trials, which are very lengthy and more complex.
For contesting the matter, the accused person has to take bail from the Court. In cheque bounce cases, the parties also have the option of settling the matter amicably outside the court, as it is a compoundable offence.
Under the provisions of section 143 A, courts can issue directions for interim compensation which shall not exceed 20% of the amount of cheque.
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