Remedies Available to the Victim of Dishonour of Cheque by the Bank

 

 Introdcution

The dishonour of a cheque occurs when a bank refuses to honor the cheque presented for payment. This is a serious issue, and it can happen for several reasons such as insufficient funds, mismatched signatures, or account-related discrepancies. Under the Negotiable Instruments Act, 1881, victims of cheque dishonour have certain legal remedies.

 

 1. Legal Framework: Negotiable Instruments Act, 1881

The Negotiable Instruments Act, 1881 is the primary law that governs the dishonour of cheques in India. Section 138 of the Act addresses the criminal liability arising from dishonoured cheques, particularly for cases where cheques are returned due to insufficiency of funds or when the amount exceeds the arrangement made with the bank.

 

 Key Sections of the Act:

- Section 138: This section makes the dishonour of a cheque a criminal offense. When a cheque bounces due to insufficient funds, the drawer (the person who issued the cheque) can face criminal charges.

- Section 139: There is a presumption in favor of the holder of the cheque, meaning that the cheque was issued for a valid reason, unless proven otherwise.

- Section 142: It outlines the procedure for filing a complaint in case of cheque dishonour. The complaint must be made within one month of the date the cause of action arises.

- Section 143: Provides for summary trials for cases under Section 138, allowing for quicker disposal of cases.

 

 2. Filing a Criminal Complaint (Section 138)

When a cheque is dishonoured, the payee (the victim) has the option to initiate criminal proceedings under Section 138 of the Negotiable Instruments Act. Here's a step-by-step process for initiating action:

 

1. Issuing a Demand Notice: Upon receiving the cheque return memo from the bank, the payee must send a written notice to the drawer, demanding payment of the cheque amount. This notice must be sent within 30 days from the date of cheque dishonour.

 

2. Filing a Complaint: If the drawer does not make the payment within 15 days of receiving the demand notice, the payee can file a criminal complaint in the appropriate court. The complaint should be filed within 30 days of the expiry of the 15-day period.

 

3. Criminal Proceedings: If found guilty, the drawer can face penalties including imprisonment of up to two years or a fine that can extend to twice the cheque amount, or both.

 

 3. Civil Remedies

Apart from criminal proceedings, the victim of a dishonoured cheque can also seek civil remedies. A civil suit can be filed for recovery of the cheque amount, as well as any interest or damages incurred due to the dishonour of the cheque.

 

 Filing a Summary Suit

Under Order 37 of the Civil Procedure Code (CPC), the payee can file a summary suit for recovery of money based on the dishonoured cheque. The summary suit process is faster and more efficient than a regular civil suit, as the court can immediately pass a decree if the defendant (the drawer) fails to show a valid defense.

 

 4. Banking Ombudsman

If the dishonour of the cheque results from a mistake or negligence by the bank (e.g., signature mismatch or wrong endorsement), the victim can approach the Banking Ombudsman. The Banking Ombudsman is a quasi-judicial authority that resolves complaints against banks related to issues like negligence, fraud, and improper cheque processing.

 

The complaint should be filed with the Banking Ombudsman within one year from the date the cause of action arises. The Ombudsman’s decision is binding on the bank, but not on the complainant, who can still seek other legal remedies.

 

 5. Defenses Available to the Drawer

The drawer of the dishonoured cheque may raise certain defenses under the law, including:

- Proof of Lack of Consideration: The drawer may argue that the cheque was issued without any valid consideration or for a loan that was not due.

- Mere Presentation of a Security Cheque: If the cheque was issued as a security deposit or for a future obligation, and the obligation is yet to be fulfilled, this can serve as a defense.

 

 Conclusion

The victim of a dishonoured cheque has multiple remedies under both criminal and civil law. The Negotiable Instruments Act, 1881 provides for criminal prosecution under Section 138, while civil suits for recovery of the cheque amount can be pursued through a summary suit under Order 37 of the Civil Procedure Code. Additionally, for cases involving bank negligence, the victim can seek recourse through the Banking Ombudsman. These remedies ensure that cheque dishonour is dealt with swiftly and effectively, providing justice to the aggrieved party.



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