CHEQUE DISHONOUR
Cheque dishonor, also known as cheque bounce, is a recognized criminal offence in Bangladesh. With cheques increasingly used in financial transactions between individuals and businesses, dishonored cheques have become a frequent issue. To protect the interests of cheque recipients, the law provides clear legal remedies under the Negotiable Instruments Act, 1881. Section 138 of this Act specifically deals with the offence of the dishonored cheque and outlines the process for filing a legal complaint.
To dishonor a cheque means to refuse payment when it is presented for clearance.
Common Reasons for Dishonor:
- Insufficient funds
- Mismatch between figures and words
- Post-dated or expired cheque
- Drawer’s signature mismatch
- Payment stopped by drawer
- Improper endorsement
- Account closed
- Mutilated or altered cheque
- Irregularities in bank’s discharge or confirmation
LEGAL FRAMEWORK FOR CHEQUE DISHONOUR IN BANGLADESH
Offences related to cheque dishonor are governed by the Negotiable Instruments Act, 1881. The Act is a special law and takes precedence over general laws in such matters. When a cheque is dishonored, the payee has the right to file a complaint against the drawer. The complaint must be filed in a cognizance magistrate court within whose jurisdiction the bank branch is located.
Under Section 138 of the Negotiable Instruments Act, 1881, the aggrieved party must follow specific legal procedures and timelines to initiate proceedings against the defaulter.
STEPS TO FILE A CASE UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT, 1881 IN BANGLADESH
When a cheque is dishonored, the payee can take legal action against the drawer under Sections 138 and 140 of the NI Act. However, certain conditions and procedural steps must be followed to make the case valid.
Step 1: Presenting the Cheque
The cheque must be presented to the bank within six (6) months from the date of its issuance or not within its validity period (whichever is earlier). If the cheque is returned unpaid, the payee can present it again if the drawer permits or within the validity period.
Step 2: Issuing a Legal Notice
If the cheque is dishonored, the payee must send a written demand notice to the drawer within 30 days of receiving the dishonor memo from the bank. This notice must clearly demand payment of the cheque amount.
Step 3: Waiting Period for Payment
After receiving the notice, the drawer has 30 days to make the payment in full. If the drawer fails to pay within this period, the offence under Section 138 is considered complete.
Step 4: Filing the Case
If the payment is not made within the given time, the payee must file a criminal complaint within 30 days from the expiry of the 30 day payment period. The case should be lodged at the Court of Cognizance Magistrate having jurisdiction over the bank branch where the cheque was presented.
Claims Against Companies for Cheque Dishonor (Section 140)
If a company issues a dishonored cheque:
- The company itself, as well as any person in charge or responsible for its operations at the time of the offence, can be held liable.
- However, a person cannot be convicted if they can prove they had no knowledge of the offence or took reasonable precautions to prevent it.
- Serving a notice to the company is sufficient—there is no need to send notices individually to all directors or partners.
ESSENTIAL DOCUMENTS REQUIRED TO FILE A CHEQUE DISHONOUR CASE
Before filing the case, the complainant should prepare and collect the following documents:
- The original dishonored cheque
- The bank return slip or memo showing the reason for dishonor
- Record of any intention to settle with the offender
- A copy of the legal notice sent to the drawer
- Postal receipt and acknowledgment of delivery of the legal notice
- Authorization letter or Power of Attorney, if the complaint is filed by an authorized agent
- List of witnesses
PUNISHMENT FOR CHEQUE DISHONOR
Under the Negotiable Instruments Act, 1881, the punishment for cheque dishonor is:
- Imprisonment up to one (1) year, or
- A fine up to three (3) times the value of the cheque, or
- Both imprisonment and fine
Appeal
If the court imposes a penalty, the convicted party has the right to appeal. However, at least 50% of the cheque amount must be deposited with the court that passed the judgment before filing the appeal.