Cheque Bouncing is serious offence punishable with two years imprisonment and fine up to two times the amount of the cheque, under section 138 of Negotiable Instrument Act, 1881 but only if the holder of the cheque follows the strict procedure for issue of notice.
Further a parallel civil action can also be instituted, for which a recovery suit can be filed under Civil Procedure Code for the recovery of cheque amount.
In an notification issued by Reserve Bank of India in November 2011, the instruments would have to be presented within 3 months of date of issue, thereby reducing the validity from 6 months to 3 months period. The amendment has been proposed in view of the misuse of the instruments by the holders of the cheque during the validity period.
Further, drafts for over Rs 20,000 would have to be Account Payee only.
The bouncing of cheque entitles the holder of cheque to take criminal action against the drawer of cheque but only if a strict procedure is followed in this respect, which is as follows:
1. In case a cheque is bounced, a notice has to be issued to the drawer of the cheque (Oppsoite Paty) within 30 days from the date of memo accompanying the bounced cheque is received from the Bank.
2. The notice by the holder of the cheque should demand the amount for which the cheque has been bounced, providing 15 days to settle the matter.
3. The Opposite Party has 15 days from the receipt of the notice to settle the matter and no cause of action arises till the expiry of these 15 days or if paid within this specified period.
4. After the completion of said 15 days, if the opposite party does not settle the matter or ignores the notice, then the holder of the cheque may file a criminal complaint before the appropriate court within 30 days of the expiry of said 15 days.
5. In case, it is beyond the said period of 30 days, the delay can be condoned by the court on sufficient cause being shown.
Stages of Court Proceedings: http://chequebounce.com/2013/stages-of-cheque-bounce-case/
Dishonour of cheque is a considered to be an criminal act under Indian Law, when the return of the cheque by the Bank is due to insufficient funds. It is covered under Negotiable Instrument Act, 1881 and provides for imprisonment upto 2 years and/or fine, which may extend to twice the amount of the cheque. Previously, the cheque bouncing act was covered under section 420 of Indian Penal Code but the offender used to get away with civil liability. Therefore, with a view to provide strict punishment, the Negotiable Instrument Act was amended in 1988, with the insertion of chapter XVII under the Negotiable Instrument Act, 1881.
Essential Conditions u/s 138 of the Act:
a) A cheque must have been drawn by a person on an account maintained by him for payment of any sum of money to another person from out of the account;
b) The cheque must have been issued for the discharge, either in whole or in part, of any debt or other liability, though, in the absence of proof to the contrary, it shall be presumed that it was issued for the same;
c) The cheque shall be returned by the bank unpaid –
i) either because of the reason insufficient funds to honour the cheque; or
ii) because it exceeds the amount arranged to be paid from the account by an agreement with that bank.
d) The stop payment of cheque is also covered under said provisions, as it points to the dishonest intention of the drawer.