Cheque dishonour-What it mean?

In our day to day financial transactions we normally issue cheques once or twice but do you know what are the implications if you not honor your obligations? What reasons may lead to book a case on you? Let us understand this in detail.

We all know that it is criminal case under Section 138 of Negotiable Instrument Act and we also know one common reason of dishonour will be insufficient fund in our bank account. But hold your breath, according to recent few court judgements few new points were identified. I tried to find as much as possible but few may miss. Hence I am not saying that below list exhaustive.

Conditions to come under Section 138 of Negotiable Instrument Act are as below.

• The cheque should have been issued for discharge.
• The cheque should be presented within 3 months or within its validity period whichever is earlier.
• The payee in due course should have issued a notice in writing to the drawer within 30 days of the receipt of information by him from the Bank regarding the return of the cheque as unpaid.
• After receipt of the said notice from the payee in due course, the drawer should have failed to pay the cheque within 15 days of receipt of the said notice.

1) Insufficient Fund in your Bank Account-We all know that after issuing cheque if you not honoured by maintaining balance which is less than issued cheque lead to cheque dishonour. So before and after writing cheque it is your responsibility honour it otherwise you may be booked.

2) Account closed– Yes if you closed your account after issuing check and due to account closure cheque dishonoured then it will lead to booking of case against you. Reason for including this is, before you close your account, you withdraw all cash from your account and close it. So it means that on cheque issue date indirectly it shows amount insufficient. Hence this will also be treated as cheque dishonoour. This was held by Supreme Court of India in below case.

NEPS MICON LTD & OTHERS VS. MAGMA LEASING LTD.

3) Stop Payment-Few people practice such things, they issue cheque and after that apply for stop payment with their bank. But this also leads to cheque dishonour. Below is the case reference of the same.

MAHENDR S. DADIA VS. STATE OF MAHARASHTRA

4) Not a clearing member-Suppose you issued a cheque of a particular bank but that particular bank many not be sometime not a clearing member. In such cases will it be considered as cheque dishonour? No..because as per the Section 138 of Negotiable Instrument Act, cheque need to be presented to bank and in this case bank will return your cheque mentioning reason as “not a clearing member”. So in this case it will not be considered as cheque dishonour!!! Refer the below cases.

HAIRMAN, JAWAHAR CO-OPERATIVE URBAN BANK LTD AND OTHERS VS. RAMANJANEYA ENTERPRISES, HYD AND ANOTHER

2005(5) CRIMINAL REPORTED JUDGEMENTS (CRJ) 0591;

2005(2) DISHONOUR OF CHEQUE REPORTER (DCR) 0169

5) Cheque Signature mismatch-Be careful while signing on cheques. Because if your signature not matching with your bank record and cheque got dishonoured then it will be a offence under the Section 138 of Negotiable Instrument Act. This is what Gujarat high court verdict is “Just as dishonour of a cheque on the ground that the account has been closed is a dishonour falling in the first contingency referred to in Section 138 of Negotiable Instrument Act, so also dishonour on the ground that the ’signatures do not match’ or that the ‘image is not found’, which too implies that the specimen signatures do not match the signatures on the cheque would constitute a dishonour within the meaning of Section 138 of the Act”.

As I mentioned earlier, the above list is not exhaustive. Hence welcome to you all to share new findings.