The Delhi High Court is preparing to deliver its verdict today, July 10, on a series of petitions filed by Bollywood actor Rajpal Yadav. These petitions challenge his conviction and sentencing in several cheque bounce cases, bringing India's cheque dishonour law, specifically Section 138 of the Negotiable Instruments Act, into sharp focus.
Justice Swarana Kanta Sharma had reserved judgment on April 2 after repeated attempts at settlement between Yadav and the complainant, M/s Murli Projects Pvt. Ltd., proved unsuccessful. During the proceedings, the court noted inconsistencies in Yadav's statements regarding repayment. While the actor has reportedly paid around Rs 4.25 crore and received an interim suspension of his sentence, he rejected a proposed Rs 6 crore full-and-final settlement.
What is a Cheque Bounce?
A cheque bounce, also known as cheque dishonour, occurs when a bank refuses to process a cheque. The most frequent reason for this is insufficient funds in the issuer's account. Under Section 138 of the Negotiable Instruments Act of 1881, cheque dishonour due to lack of funds is a criminal offence. This can lead to severe penalties, including imprisonment for up to two years, a fine up to twice the cheque amount, or both.
When a cheque is returned unpaid, the bank issues a 'return memo' to the payee, which then allows them to initiate legal proceedings.
Common Reasons for Cheque Dishonour
While insufficient funds are the primary cause, cheques can also bounce for several other reasons:
- Expiry: The cheque has passed its validity period.
- Signature Mismatch: The signature on the cheque does not match the one on file with the bank.
- Overwriting or Physical Damage: The cheque is altered or physically damaged, making it unreadable.
- Discrepancies: The amount written in words differs from the amount written in figures.
- Account Closure: The issuer's account has been closed.
It is important to note, however, that criminal liability under Section 138 generally applies specifically when the cheque is dishonoured due to insufficient funds or if it exceeds the arrangement made with the bank.
The Legal Process: From Notice to Verdict
Issuing a Cheque Bounce Notice
The initial legal step following a cheque bounce is for the payee to issue a formal cheque bounce notice to the drawer. This notice must be sent within 30 days of receiving the bank's return memo. It must explicitly demand payment of the exact cheque amount within 15 days. Even minor discrepancies between the amount stated in the notice and the cheque itself can invalidate the notice and weaken subsequent proceedings under Section 138.
What Happens if Payment is Not Made?
If the drawer fails to make the payment within 15 days of receiving the legal notice, the payee is then entitled to file a criminal complaint with the appropriate court within the prescribed time limit. A crucial condition for Section 138 to apply is that the cheque must have been issued to discharge a legally enforceable debt or liability. Cheques issued for gifts, donations, or other non-enforceable obligations do not fall under this provision.
Court Proceedings and Penalties
Once a criminal complaint is filed, the Magistrate examines the complainant's submissions and supporting documents. If a prima facie case is established, the court will issue summons to the drawer (the accused). The accused then has the opportunity to admit or deny the allegations, after which both parties present their evidence and arguments. If found guilty, the drawer may face imprisonment for up to two years, a fine that can be up to twice the cheque amount, or both.
Civil Recovery and Settlement Options
Beyond criminal proceedings, a payee also has the option to file a civil suit to recover the outstanding amount. Unlike Section 138 proceedings, a civil recovery suit does not necessitate a cheque bounce notice and focuses solely on debt recovery rather than imposing criminal punishment. Many cheque bounce disputes are also resolved out of court through immediate repayment, reissuing a valid cheque in cases of technical errors, or an amicable settlement between the involved parties.
Company and Director Liability
When a dishonoured cheque is issued by a company, both the company itself and the directors or officers responsible for its operations may face liability under the Negotiable Instruments Act, provided all statutory conditions are met. However, if the drawer settles the cheque amount within 15 days of receiving the legal notice, no offence under Section 138 is deemed to have occurred, thereby preventing further criminal proceedings. Banks may also impose their own cheque bounce charges, underscoring the importance of timely payment and correct cheque issuance to avoid both legal and financial repercussions.