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Cheque Dishonour - Know the steps involved in the legal recourse

Abhey Narula 18 Nov 2016, 11:26am
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A dishonoured cheque which is also known as returned deposit item (RDI) or non-sufficient funds (NSF) cannot be redeemed and believed to be worthless. Usually cheques get dishonoured when drawer’s account is frozen or there are insufficient funds in drawer’s account when cheque was redeemed.

When the cheque is dishonoured, the concerned bank immediately issues one cheque return memo to the payee’s banker mentioning the proper reason for non-payment.  The banker of the payee then gives dishonoured cheque as well as memo to payee. Holder or the payee can later resubmit cheque within 3 months of date on the same, only when he believes that it is going to be dishonoured the next time. But in case cheque issuer fails to do the payment, then payee has full right to prosecute drawer legally.

Purpose:

The payee has the right to legally sue the drawer/ defaulter for cheque dishonour only when the amount mentioned on the cheque is towards the discharge of any liability or debt of defaulter towards payee.

Areas of Application of Law:

According to the section 138 dishonour of the cheque is a criminal matter and the punishment involves imprisonment of 2 years or monetary penalty or may be both.

Process:

  1. A legal notice on payee’s behalf is send to the defaulter, within 30 days of cheque dishonour. All the facts including nature of the transaction, loan amount or any other  enforceable debt against which the given cheque was issued and date of deposit in the bank along with the date of the dishonour of the cheque should be clearly mentioned in that notice.
  2. The cheque issuer is directed through notice to make the payment of the amount of cheque dishonour in almost 15 days. If the accused makes the payment within the 15 days of the notice then the matter automatically ends.
  3. When the due amount is not made within 15 days then the cheque holder should immediately file a criminal case because the time period given to them is 30 days from expiry of those 15 days notice period. It is always suggested to hire an advocate to handle this matter in the court.
  4. The complainant is supposed to file the case in the located where the concerned bank is.
  5. Affidavit and relevant documents should be carried along with the complaint.
  6. The respective court will definitely hear to the complainant or the advocate on his/her behalf and summons the accused under section 138 of the NI Act.
  7. The summons is served to the accused at his/her residence through the nearby police station. Sometimes summons are also served through speed post by the authorized courier service and when not accepted it will also be treated as duly served.
  8. Police station is usually limited to only summons serving. In any case accused remains absent on the court date after summons being served, and then warrant is sent to the concerned police station to present accused in the court.
  9. The accused and the guarantee is supposed to appear in the court and submit all the documents ( ownership documents of the house or the land owned by the surety, election identity card, address proof along with ration card, photo, and address proof of the guarantee etc.). The court accepts the surety and once the bond is signed by both surety and accused then the court will grant the bail to the accused.
  10. The lawyer of the accused cross examines the all the witnesses along with the complainant
  11. Statement of the accused is being recorded U/S 313 of Cr.P.C . Where he is supposed to answer the questions and the allegations against him.
  12. Witnesses of the accused will also be produced in the court and all the evidences will be recorder which collectively helps to prove his innocence.
  13. The final stage is of the arguments between the advocates of both the parties
  14. The court will give its judgement after hearing the final arguments
  15. If the accused is acquitted then the matter ends there or in case if he/she is convicted then he would immediately submit a bail application and give surety and plead for time to appeal in the sessions Court. The court will direct the convict to deposit the fine mentioned during the judgement immediately and he will then be released subsequently on the acceptance of the bail application.
  16. The convict should appeal to the session’s court within one month from the day of the judgement from lower Court.
  17. The Dispute may also go from Sessions Court to the higher Courts as well
  18. However matter can also be settled anytime between both the parties. In that case such settlement an application would be moved before the respective court to multipart and close the case.

Documents required to be submitted in the court

  1. Dishonoured Cheque
  2. Vakalatnama of the advocate
  3. Proof of the dispatch of sent legal notice
  4. Bank memo stating the reason for cheque dishonour
  5. Postal acknowledgment by the accused
  6. Copy of the notice being sent to the accused
  7. Delivery Challan and acknowledgment, in case any good being received by accused
  8. Any document which is evidence of creation of the debt or the liability
  9. Any contract or agreement between the complainant and the accused including the orders placed
  10. The bill or invoice against the dishonoured cheque was issued

Punishment/Expected Relief

If Court founds the person to be guilty then the fine which may double the amount of the dishonoured cheque or imprisonment of at least two years or may be both will be there.
And when the drawer makes the payment within 15 days from the receipt date of the notice then the case gets dissolved as it won’t be considered as offence.

Landmark Judgements

Dashrath Rupsingh Rathod vs State Of Maharashtra & Anr

Mainuddin Abdul Sattar Shaikh vs Vijay D

 

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