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Cheque Bounce- Return Charges, Reasons and Consequences
August 19 , 2013

Based on an estimate nearly 20% of pending court cases in the country revolve around cheque bounce. Dishonouring cheques is one of the most common financial offences worldwide. This article will graze through reasons, bank charges and remedies of cheque return.

When someone gives you a cheque and it is returned unpaid it is an inward return cheque for your bank and an outward return cheque for the bank of the person who signed the cheque.

Reasons why cheques bounce

Most commonly cheques bounce due to lack of sufficient funds in the issuer's bank account. Such cheques are called dishonoured cheques or bad cheques.

But at times cheques can bounce for technical reasons as well. These could be mismatch in signature, no date mentioned on the cheque or if the cheque is a post dated and you have prematurely deposited it.

Your cheque could have even bounced for other reasons such as failure in the cheque truncation system or link or power failure.

Bank charges on cheque return

i. Cheque return for insufficient balance

A cheque returned for lack of enough funds is too bad. Both banks are put to additional work when a cheque bounces and both the cheque issuer (drawer, in other words) and the payee (one in whose favour the cheque is drawn) are penalized for such returned cheques. The drawee bank (ie where the drawer has an account) charges drawer for the outward return cheque and the presenting bank where the cheque was deposited by the payee (ie where the payee has account) charges payee for the inward return cheque.

Charge for cheque outward return is higher and near about Rs 300, as of now in 2013, whereas for cheque inward return it is about Rs 100. You can find out exact charges from the bank's service charges list.

Charges can be higher in premium accounts. Some banks have higher penalty charge on exceeding certain number of misses in a period. For instance ICICI Bank charges double the penalty from the third default in a month on cheque return or funds transfer return and HDFC Bank charges double on second cheque return in a quarter.

These charges for lack of sufficient funds in account are applicable on payment through electronic funds transfer as well.

ii. Cheque return for technical reasons

Few banks do charge a small fee (less than Rs 100) on cheques drawn on them if they are returned for technical reasons other than system or power failure. Others may not charge for cheques returned due to technical reasons.

Action against bounced cheques

If you are in the receiving end of a bad cheque you can take legal measures to recover your dues. Of course then cheques given as donation or gift cannot be contested.

But before you get into those, ask for your bank's 'cheque return memo' which will tell you why the cheque did not pay. Clarify things with the issuer and deposit it again if it is expected to be honoured. The cheque should be presented to your bank within 3 months of the date put on it. Beyond this the instrument is invalid.

If this does not work you can take legal recourse. Send a legal notice to the defaulting drawer within 30 days of getting the memo. The notice should include relevant details like amount, nature of transaction, dates of depositing cheque and bounce. If he fails to make payment within 30 days of getting notice you can file a criminal case in a magistrate's court under section 138 of the Negotiable Instruments Act. But this case should be filed within expiry of those 30 days. If convicted he would be punished with 2 years' imprisonment and/or a fine which could be double the cheque amount.

Section 138 of the Negotiable Instruments Act deals with the offence of non-maintenance of sufficient funds to honour a cheque or issuing a cheque whose amount is more than what the bank has agreed to pay from the account. The imprisonment clause in the section is likely to be scrapped soon. It is expected to be replaced by an amendment which will require such cases to be settled by arbitration or conciliation. 

But this process might not help you recover your dues or losses. For this you would have to file another civil petition. This is a summary suit under Order 37 of the Code of Civil Procedure and when one would not get into this unless it is about huge amounts.

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