A cheque is a negotiable instrument in India and is said to be bounced or dishonored when the payment on the date mentioned is not honored. The cheque is the most preferred instrument to make payments.
A cheque can bounce for a number of reasons such as insufficient funds, post-dated cheque, signature mismatch etc.
In India, cheque bounce for certain reasons such as due to insufficient funds is considered as a criminal offense under section 138 of the Negotiable Instruments Act.
Recently, Vijaya Mallya was convicted for two cheque bounce cases involving Kingfisher Airlines. The Honorable Court will announce the punishment for the same on May 5, 2016.
A business person or individual should make sure about funds and other things before issuing a cheque.
In case of multiple cheques bounce cases the repercussions can be harsh.
Here are reasons why you should not neglect a cheque bounce.
Penalty from bank
If there is a cheque bounce in your account, the bank will deduct the required amount from your account as a penalty. In such cases, even the payee will be charged by his bank.
The penalty charges will vary with banks and type of account sometimes. Generally, the bank will charge around Rs 300 and for inward return, it would be around Rs 100.
Negative impact on CIBIL Score
It takes years to build a good credit history and one single cheque bounce can damage your credit score. In case of negative or bad credit score, banks may not entertain your loan or can charge a higher amount. A credit score is very essential for disbursement of the loan. Know more on Cibil Score
Cheque bounces in case of EMI option
Banks initially charge fees and penalty for one time default or delay in payment. In case of secured loans, banks after repeated reminders can seize the asset after giving sufficient and auction the same to recover the amount.
The defaulter in cheque bounce case can be prosecuted under Section 138 of Negotiable Instruments Act, 188 if there is a relevant reason.
The payee should send notice within 30 days of the receipt to the payer to the correct address asking to make payment.
The payee has the right to file a complaint if the issuer does not pay the amount within 30 days of notice.