Cheque Bouncing Explained
A cheque that is refused by the bank and sent back to the issuer is known as a bounced cheque. Such a cheque is not honored because of specific issues. When this happens, the bank gives the depositor a Cheque Return Memo, which states the primary cause for the cheque’s rejection.
Consequences of Insufficient Funds for Cheques
When an account holder issues a cheque without adequate funds in their account, the cheque is likely to be rejected or “bounced” by the bank. This situation arises when the cheque’s specified amount exceeds the actual balance in the account. Upon presentation, if the bank finds the funds to be insufficient, the cheque is not honored and is returned. It’s worth mentioning that banks typically charge a fee, known as NSF (Non-Sufficient Funds) fees, to the person who issued the bounced cheque.
Cheque Bounce Consequences
Issuing a bounced cheque is considered a criminal act and is therefore subject to penalties.
Causes
Below are the common reasons for a cheque being returned unpaid:
Issues with Cheque Transactions
Lack of Funds
When an account holder doesn’t have enough money to cover the amount on a cheque, the bank will decline to cash it. This results in a bounced cheque, and the recipient won’t receive the indicated amount. Furthermore, a fee for Non-Sufficient Funds (NSF) will be levied on the individual who issued the cheque.
Cheque Expiry Concerns
Many people delay cashing their cheques, sometimes waiting beyond the valid date. Once the validity period is exceeded, the bank will reject the cheque, causing it to bounce. To rectify this, a fresh cheque must be issued.
Ensuring Signature Consistency on Cheques
For the validity of a cheque, it’s essential for the signatory to maintain consistent signatures across all cheques. If there’s a discrepancy between the signature on the cheque and the signature on record, the cheque might be declined or “bounced”. This practice primarily stems from security concerns. Accepting cheques with inconsistent signatures can lead to significant security breaches and might invite fraudulent activities. Thus, it’s imperative for signatures on cheques to be consistent.
Amount Consistency in Cheques
The sum represented in words must match the sum expressed numerically. Any discrepancy can result in the cheque being declined or returned.
Handling Bounced Cheques: Legal Procedures and Implications
When cheques are marred by overwriting or scribbling, they often result in bouncing at the bank. Such instances can lead to legal ramifications for the issuer.
- A bounced cheque may necessitate legal intervention. The person who issued the cheque could face legal proceedings.
- Initially, a notice is dispatched to the cheque issuer. They are granted 15 days to repay the amount.
- Should they fail to address the issue or make the payment within the stipulated time, a criminal lawsuit is initiated within 45 days following the expiry of the notice period.
- The beneficiary can represent the cheque for clearing post a 3-month gap if the issuer guarantees its clearance on the subsequent attempt.
- Upon receiving a bank memo for the bounced cheque, the beneficiary has a window of 330 days to issue a legal notice to the defaulter.
- If the defaulter doesn’t settle the amount within the 15-day notice period, a lawsuit pertaining to cheque bouncing can be instigated.
- Absence of legal action post this window may render the bounced cheque claim void.
- When lodging a complaint, all relevant documents that substantiate the bouncing of the cheque should be included.
- Once the lawsuit is filed, the cheque issuer is mandated to present themselves in court.
- To recoup the outstanding amount, the beneficiary can opt for a civil suit or a summary suit.
- To streamline the recovery process, individuals and businesses can also employ Debt Recovery Services for efficient retrieval of unpaid dues, including bounced cheques.
