Answer By law4u team
If the drawer (the person who issues a cheque) has insufficient funds in their account at the time the cheque is presented for payment, the cheque will bounce or be dishonored. Here's the sequence of events and the legal consequences: 1. Cheque Bouncing: When the cheque is presented to the bank, it will be rejected due to insufficient funds in the drawer's account. The bank will return the cheque to the payee's bank with a message indicating that the cheque was dishonored due to insufficient funds. This is commonly referred to as a bounced cheque. 2. Charges Imposed: The bank may charge the drawer a fee for the dishonor of the cheque. This fee is levied by the bank as part of their processing costs when the cheque cannot be cleared due to insufficient funds. 3. Legal Consequences for the Drawer: The drawer may face serious legal consequences under Section 138 of the Negotiable Instruments Act, 1881, which deals with dishonored cheques. Key provisions under Section 138: Criminal Liability: If a cheque bounces due to insufficient funds, the payee (the person receiving the cheque) has the right to file a criminal complaint against the drawer. If the drawer is found guilty, they can be punished with imprisonment for up to 2 years or a fine that may extend to twice the amount of the cheque or both. Notice to the Drawer: The payee must send a demand notice to the drawer within 30 days of receiving the dishonor notice from their bank. The drawer has 15 days from the date of receipt of the notice to make the payment. Failure to Pay: If the drawer does not make the payment within 15 days of receiving the notice, the payee can then file a criminal case in the court, leading to legal proceedings. 4. Civil Liability: Apart from criminal penalties, the payee can also seek to recover the amount of the bounced cheque through civil proceedings, including filing a suit for recovery in a civil court. 5. Impact on the Drawer’s Credit: A bounced cheque can harm the drawer's creditworthiness and may be recorded in their credit report. This can impact their ability to obtain credit, loans, or issue cheques in the future. 6. Settlement: In some cases, if the drawer rectifies the situation by ensuring there are sufficient funds and pays the cheque amount along with any applicable charges, the payee may decide to settle the matter amicably. However, once a criminal complaint has been filed, the matter may proceed through legal channels regardless of any settlement. 7. Additional Consequences: Repeated Bouncing: If the drawer repeatedly issues cheques without sufficient funds, it can result in reputation damage and the cancellation of the drawer’s cheque book by their bank. The bank may also blacklist the drawer from issuing cheques for a certain period. Conclusion: If the drawer has insufficient funds in their account, the cheque will bounce and may lead to both criminal and civil consequences. Under Section 138 of the Negotiable Instruments Act, the drawer can face imprisonment or fines if the payee initiates legal action. The drawer also risks damage to their credit and reputation. It is advisable for the drawer to ensure sufficient funds in their account to avoid legal and financial consequences.
