Assignment 1 Submitted To: Mr.

Purushottam Kumar
Subject: Banking Law Submitted By: Stuti Baradia
Sem VIII (4th year)
B.B.A LL.B
Que: What do you mean by cheque bounce/ dishonour of cheque and What is the
procedure of the recovery of the amount under the relevant act?

Meaning Of Dishonor Of Cheque

The bank should pay the amount mentioned on the cheque as soon as it is presented. If the
amount of cheque is paid by the bank to the payee, the cheque is said to be honored. If the
bank refuses to pay the amount of cheque, then the cheque is said to be dishonored. Thus
the dishonored of the cheque means the refusal by the bank to pay the amount of cheque to
the payee. It is a condition in which the bank does not pay the amount of the cheque to the
payee. In fact, when the drawer draws the cheque without following all the rules of issuing
cheque or when he/she draws the cheque exceeding the bank balance then the bank dishonors
the cheque.

Following are the some important reasons for dishonoring a cheque

If the date is not written or written incorrectly or the date given is of three months
before or if the advance date is given.
If the name of the payee is not written or not written clearly.
If the ordered or crossed cheques are transferred without proper endorsement and
delivery.
If the amount is not written in words and figures or written incorrectly or if the
amount written in words and figures does not match with each other.
If the alteration made on the cheque is not proved by the drawer giving signature.
If the account number is not mentioned or if it is not clear or if it is not mentioned
clearly.
If the signature is not given or if the signature given in the cheque does not match
with the signature given on the signature specification card kept by the bank.
 If the amount mentioned on the cheque is more than the amount that the drawer has in
his bank account or if as per bank's rule the minimum balance in the account of the
drawer cannot remain.
If the cheque is overwritten.
If the cheque is not found in proper condition or it is found wet, torn or spotted.
If the drawer has given order to the bank to stop payment of the cheque.
If the bank has got the information regarding the death or insolvency or lunacy of the
drawer of depositor.
If the court of law orders the bank to stop payment of the cheque.
If the bank balance remains shortage on account of not collecting the cheque
deposited.
If the drawer has closed his/her account before presenting the cheque.

What to do if a cheque given to you bounces

According to the Section 138 of the Negotiable Instrument Act, a person whose
drawn cheque has been dishonoured is liable and shall be made to pay fine which is double
the amount written in the cheque or should be imprisoned for two years or both. This means
that the person who wrote a cheque and then dishonored it for any reason (insufficiency of
funds, stop payment order etc) can be punished under the criminal law for his action. If you
have money stuck in a bad debt, then if a cheque was issued to you then you can use this as
a threat to recover your dues.

Steps which should be taken when cheques bounce

1) The cheque has to be presented to the bank within a period of 3 months (earlier it was 6
months) from the date on which it is drawn or within the period of its validity, whichever is
earlier.

2) The holder of cheque should send a notice to the drawer mentioning the dishonoring of
the cheque by the bank within 30 days after cheque has been dishonored.
3) The drawer has 15 days to repay the amount and if he fails to do this then holder has to
take a civil action within a month.

The drawer will only be liable when he has legally enforceable liability or debt to pay to the
holder. If the cheque is drawn for donation or to the charitable organization then it wont
come under dishonoring of a cheque. Even application amount paid for shares falls in this
category.

Earlier, if the signature mismatched or some alterations were made in the cheque, it didnt
fall under the ambit of willful dishonor of cheque but in a recent judgment of the Supreme
Court it was held that dishonouring of a cheque due to a signature mismatch with the one
submitted as a specimen to the bank could make drawer pay a hefty fine or get him
prosecuted.

Sometimes the name of the drawer is not clear on the cheque and also there is no mention
of address of the drawer. Holder may contact the bank on which cheque is issued and request
the bank to provide him drawers contact information.

The Bombay High Court has ruled that bank cannot prosecute borrowers under the stringent
anti-cheque bouncing law if blank post-dated cheques issued by them as collateral security
are dishonoured.

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