Is dishonor of cheque is legal offence in India?

Cheque is used widely for making varied personal and business transactions. Cheques also are issued to make payments or as securing proof of payment. A cheque is valid for payment for six months from the date of cheque.

The author of the cheque who is drawer draw the cheque in the favor of payee and the bank is called payee. It happens sometimes that a cheque gets bounced due to insufficient balance in account or for some other reasons. For such cases punishment is given under Section 138 of Negotiable Instrument Act, 1881. Dishonor of cheque is considered as a criminal or legal offence in India. This act is to put a stop to discrepancy or dishonesty on the part of drawer. A drawer shall be liable to be punished with imprisonment up to one year or with a fine of double amount of dishonored cheque.

What happened when cheque is dishonored?

When a cheque is dishonored due to insufficiency of amount in the drawer’s account, the drawer bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee. The reason of non-clearance of cheque is mentioned by the bank on cheque. The cheque holder can resubmit the cheque within three months of the date mentioned on the cheque if there is possibility of getting cheque cleared second time. If cheque issuer again fails to make a payment, then the payee has the right to take legal action against the drawer.

If payee determines to take action legally, then a chance of immediate payment should be given to payee in the form of legal notice. After receiving ‘Cheque Return Memo’ from the bank, the payee should send the legal notice to the drawer within 30 days. The notice should mention that the payment of cheque should be made within 15 days of receipt of notice failing which can lead the drawer to the court for further legal procedure.