by Cheques have long been a trusted mode of financial transaction, facilitating smooth business operations and personal payments. However, when a cheque is dishonored, it can lead to legal implications under Section 138 of the Negotiable Instruments Act, 1881. Understanding the reasons behind cheque dishonour is crucial for both payees and drawers to navigate the intricacies of financial transactions effectively.
1. Insufficient Funds:
One of the most common reasons for cheque dishonor is insufficient funds in the drawer’s account. When the amount mentioned on the cheque exceeds the available balance, the bank is unable to honor the payment request.
Low Account Balance::
When you do not have sufficient funds in your bank account to cover the cheque amount, it will bounce.
2. Mismatch / Irregular Signature:
Banks are meticulous about verifying signatures on cheques. If the signature on the cheque does not match the specimen signature provided by the account holder, the cheque may be dishonored to prevent potential fraud.
3. Stale Cheques:
A cheque becomes stale if it is presented for payment after a certain period, typically six months from the date of issue. Banks may refuse to honor such cheques to avoid potential discrepancies or disputes.
4. Payment stopped by Drawer:
The drawer of a cheque may instruct their bank to stop payment on a specific cheque for various reasons, such as discovering an error in the amount or deciding to use an alternative mode of payment.
5. Account Closed or Frozen:
If the drawer’s bank account is closed or frozen due to legal reasons, the bank will dishonor any cheques issued from that account until the matter is resolved. Closing the bank account mentioned on the cheque before presenting it to the bank will cause the cheque to bounce.
6. Discrepancies in Cheque Details:
Any discrepancies in crucial details on the cheque, such as incorrect date, amount mismatch between numerical and written figures (discrepancy in words and figures), or incomplete details, can lead to its dishonor.
6. Post-Dated Cheques:
Presenting a cheque before the date specified on the cheque is considered dishonorable.
6. Changes/Alternations to the Cheque:
Making unauthorized changes or alterations to the cheque can lead to dishonor.
Legal Implications under Section 138:
When a cheque is dishonored due to any of the above reasons, the payee (the person to whom the cheque is issued) can take legal action under Section 138 of the Negotiable Instruments Act, 1881:
Notice Requirement: The payee must first issue a notice to the drawer within 30 days of receiving information about the dishonour from the bank.
Drawer’s Obligation: The drawer then has 15 days from the receipt of the notice to settle the payment.
Legal Proceedings: If the drawer fails to make the payment within the stipulated time, the payee can file a criminal complaint in a court of law within one month from the expiry of the 15-day period.
Conclusion:
Understanding the reasons for cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 is essential for both individuals and businesses involved in financial transactions. It underscores the importance of accuracy, diligence, and compliance with banking regulations to avoid legal repercussions. By adhering to these principles, parties can maintain trust and reliability in their financial dealings, ensuring smooth and efficient transactions in the modern economic landscape.
Disclaimer:
This information is provided for general guidance purposes only and should not be considered as legal advice. It is recommended to seek personalized advice from a qualified lawyer that is tailored to your specific situation.
