A dishonored or bounced cheque is a criminal offense under Section 138 of the Negotiable Instruments Act, 1881. If a cheque issued by a debtor is returned unpaid by the bank due to insufficient funds or account closure, the payee can initiate criminal prosecution to recover the money.
Step-by-Step Payment Recovery Timeline
1. Bank Return Memo: When a cheque bounces, obtain the official Bank Return Memo specifying the exact reason for dishonor (e.g. 'Funds Insufficient').
2. Statutory Legal Notice within 30 Days: You must issue a formal Legal Notice through an advocate to the drawer within 30 days from the date of receiving the bank memo. The notice demands payment of the cheque amount within 15 days.
3. 15-Day Waiting Period: The debtor is given 15 calendar days from notice delivery date to clear the outstanding payment.
4. Filing Criminal Complaint in Court: If the debtor fails to pay within 15 days, a criminal complaint must be filed in the Judicial Magistrate Court within 30 days from the expiration of the 15-day notice period.
Penalties Imposed on Defaulter
Under Section 138, the court may sentence the defaulter to imprisonment for up to 2 years, or impose a monetary fine up to twice the cheque amount, or both. Interlocutory interim compensation up to 20% of the cheque amount can also be awarded to the complainant under Section 143A.
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