In the current era, Cheques are used in almost all transactions, be the guarantee of loans, Landlord tenant agreements, tenders, payment of salary to employees, payments of bills etc. Cheques have become an integral part of our day to day transactions.
A cheque is a negotiable instrument which has been defined under Section 6 of the Negotiable Instruments Act,1881. Crossed cheques or account payee cheques are not negotiable by any person other than the payee of the cheque. It is advised to use account payee cheques in order prevent misuse of the cheque.
The person who is the author of the Cheque is called the ‘Drawer’, the person in whose favour the cheque is signed is called the ‘Payee’ and the bank which is directed to pay the amount is called the ‘Drawee.’
Reasons for Dishonour of Cheque: A cheque may be returned by the drawee bank because of any of the following reasons.
Non-Applicability of Funds
Alterations in the Cheque
When payment is stopped
If a cheque is dishonoured: If a cheque is dishonoured then the drawee bank issues a ‘cheque return memo’ to the payee mentioning the reason for return. After which the payee may resubmit the cheque to the bank within three months if he thinks that it will be honoured a second time. If the cheque is dishonoured again, then the payee has the right to prosecute the drawer legally.
Section 138 of the Negotiable Instruments Act,1988 provides a legal recourse. Under this section the payee must send a notice in writing to the drawer to repay the sum immediately. The requisites of this section are as follows:
The notice must be sent within 30 days of receiving the ‘cheque return memo.’
The Drawer must be given a period of 15 days to repay the sum.
The notice must mention the cheque and the amount to be paid.
Under Negotiable Instruments Act, 1881 the dishonour of cheque is considered to be a criminal offense punishable upto 2 years or penalty or both.