What is Dishonor of Cheque or Bounce?
Dishonor of cheque/bounce or rejection of cheque is a common issue in Bangladesh. At first, we need to understand what actually dishonor of cheque means. When a cheque is dishonored, it means the drawee (which has to be a bank) has denied to pay the sum written in the cheque to the payee (to whom the cheque is issued).
According to section 138 of the Negotiable Instruments Act, 1881 (“N.I. Act”), where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honor the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence. Therefore, it is a punishable offence and the drawer (who issued the cheque) shall be prosecuted under this Act. In the case of Shah Alam Vs. State (2011) 63 DLR 137, it was established that if a drawer of the cheque intentionally dishonors it, he will be liable under section 138 of the N.I. Act.
Reasons Behind Dishonor of Cheque
There is a misinterpretation regarding section 138 of this Act, that a cheque is only dishonored due to insufficiency of funds. However, if we peruse the section closely, we see there can be some other reasons when a bank can dishonor a cheque. A cheque maybe dishonored in the following circumstances.
- Insufficiency of funds
- Differences in figure and word of amount
- Irregular Endorsement
- Payment stopped by drawer of the cheque
- Discrepancy in signatures
- Cheque out of date or post-dated
- Account Closed
- Mutilated cheque
- Death or insanity of the drawer
- Overwriting
- Technical error
What to do When a Cheque is Dishonored?
When a bank refuses the cheque-holder to pay the money written in the cheque (which amounts to dishonor of cheque), the payee can file a criminal case against the drawer of the cheque for the realization of the money due to him by the drawer of the cheque. However, as per section 138 of the N.I. Act, a payee has to follow certain obligations before filing a case against the drawer. Here the obligations are described below.
Presenting the Cheque to the Bank
The payee has to present the cheque before the bank in order to encash it, within six months from the date of issuing such cheque. If it is not presented during this specified period, the cheque will lose its validity.
Procuring the Dishonor Slip
When a cheque is dishonored or rejected, the payee will have to obtain the dishonor slip from the bank. Such dishonor slip shall contain the exact reason of dishonoring the cheque.
Sending Legal Notice to the Drawer
After procuring the dishonor slip, the payee shall have to send a legal notice to the drawer claiming the money specified in the cheque within thirty days from the date of the day when such cheque was bounced. In this notice, the payee has to prescribe a time limitation to the drawer i.e., within thirty days from the date of receiving such notice, the amount written in the cheque shall have to be paid.
Here an important question may arise that how this legal notice is to be served. If we enunciate section 138 (1A), we get to know that three ways are available to serve a legal notice such as,
a) by delivering the notice in person to whom it is made, or
b) by registered post, or
c) by publication in a daily Bengali newspaper having wide circulation.
A payee can go through any of these, whichever is suitable to him.
Filing a Case of Dishonor of Cheque
When the drawer of the cheque fails to pay the amount specified in the legal notice within thirty days of receiving such notice, the payee gets a liberty to initiate a criminal case against the drawer under section 138 of the N.I. Act. Here the cause of action for filing this case commences from the expiry of thirty days of receiving the said legal notice and remains in force for the next one month.
Documents that need to be Submitted in Filing a Case of Cheque Dishonor
The following documents have to be submitted while filing a cheque dishonor case under section 138 of the NI Act.
- The Dishonored Cheque
- The Dishonor Slip
- Copy of the Legal Notice
- Postal receipt of the Legal Notice
- Acknowledgement due of the Legal Notice
Where to File the Case?
Section 141(C), of this Act enunciates that the power to try cases of dishonor of cheque is only given to the Court of Sessions. However, Hon’ble High Court Division of the Supreme Court of Bangladesh published a circular dated 08-03-2021, stating that from now on, cases under section 138 of the N.I. Act can only be heard by the Joint Session Judge. Here at first, the payee has to file the case before the Metropolitan Magistrate or Judicial Magistrate Court and once the case is taken up, the Magistrate shall transfer it to the Joint Session Judge.
Punishment
According to Section 138(1) of this Act, if the accused is proved to be guilty, which means he has committed this offence, shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to thrice the amount of the cheque, or with both. Here one thing has to be mentioned that the payee shall not get thrice of the amount rather he will only get the amount specified in the cheque and the rest shall be vested to the government.
Appeal
Section 138A of this Act enunciates, the provisions for filing an Appeal against the decision of the trial Court. However, the Hon’ble High Court Division directed that cases of cheque dishonor has to be heard by the Joint District Judge, so appeal against the judgement of such Court cannot be filed in the High Court Division, which means appeal has to be filed in the Court of Session Judge. Moreover, the convicted person of a cheque dishonor case has a mandatory obligation, which he has to follow before lodging an appeal. Here 50% of the fine given by the trial Court have to be deposited in the said Court and without depositing this, no appeal shall be allowed.
Other Remedies
In addition to the complaint flied under section 138 of the said Act, the payee has no bar to file a civil suit against the drawer under the Code of Civil Procedure, 1908 for recovery of money because both remedies are available in this regard. In Khandokar Mahtabuddin Ahmed Vs. State 49 DLR AD 132, the Appellate Division affirmed that simultaneous criminal charges and civil claims on the same matter are permissible. Moreover, there is another remedy available as an alternative to section 138 of this Act, if the payee fails to collect the money stated in the cheque, and that is section 420 of the Penal Code, 1860. In Abdul Khair Chandu vs. State 65 DLR 230 (HCD), the High Court Division stated that if the drawer fails to arrange the payment of the cheque money within the allotted time, such act may constitute an offence of cheating, which is punishable under section 420 of the Penal Code of Bangladesh and therefore the payee may also bring a law suit under section 420 of the Penal Code, 1860 for cheating.
Disclaimer: This article is intended for educational purposes only and should not be taken as legal advice. For legal guidance, please consult your lawyer.
LL.B (Hon’s), LL.M
Advocate, Dhaka Judge Court.
Associate, AinPal.
