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A cheque allows a person to ask their bank to deduct money from their account to give it to someone. There are many types of cheques such as order cheque, crossed cheque, bearer cheque etc.

Cheques

This explainer discusses the concept of cheques, cheque bouncing and punishments for committing cheque related crimes. It primarily deals with the law laid out in the Negotiable Instruments Act, 1881.

Introduction to Cheques

How do cheques work?
Intention of Drawer of Cheque
Importance of Signature on a Cheque
Encash a cheque
Cheque Clearing
Cheque Truncation System
Endorsing cheques
Speed Clearing for Outstation Cheques

Types of Cheques

Valid cheques
Crossed Cheque
Uncrossed or open cheque
Bearer cheque
Order Cheque
Cancelled cheque

Precautions

Precautions to be taken by customers
Precautions to be taken by banks while dealing with cheques

Problems & Forgery

Cheque Processing Problems
Forging a cheque

Cheque Bouncing

Cheque Bouncing
Notice after a cheque has bounced
Who can file a case for cheque bouncing?
Banks falsely bouncing cheques
Filing a case against a company for dishonour of cheque
Precautions to be taken by customers to avoid cheque bouncing
Time Period for Filing a complaint for cheque bouncing
Settlement out of court for cheque bouncing
Punishment for Cheque Bouncing Cases
Arrest for Cheque Bouncing

Complaints & Courts

Settlement out of court for cheque bouncing
Where to file a complaint?

FAQs

How do I know the cheque collection policy of my bank?

Each bank will have their own policy on cheque collection. You can ask your bank or check their website for their policy.

Someone issued a cheque to me but the account was closed before I could encash it. Is this cheque bouncing?

Yes, this is cheque bouncing. If the account of the person who issued you the cheque is closed, then it is an act of cheque bouncing.

What does Account Payee on the side corner of the cheque mean?

If “Account Payee” is written between the crossed lines on the corner of the cheque, it means that when the cheque is presented to the bank by you, the cheque amount will be transferred to your bank account only. You cannot get the cheque amount in cash over the counter.

What does “or bearer” on a cheque mean?

When a cheque has no name written in the payee section and the “or bearer” has not been crossed out, it is called a bearer cheque. To know more about bearer cheques, please refer to this.

Are there any other consequences to dishonor of cheque that I can face in terms of banking privileges with my respective bank?

The RBI (Reserve Bank of India) allows each bank to decide the consequences of repeated cheque bounces. So please check with your bank with regards to specific consequences for repeated cheque bounces.

Is it possible that the bank can misplace my cheque after I have presented it to them for encashment?

It is possible for the bank to misplace your cheque either during the clearing process or at the paying bank’s branch. In such situations the bank should do the following:

The bank should immediately inform the customer who presented the cheque.
The customer is entitled to be reimbursed by banks for related expenses for obtaining duplicate instruments and also interest for reasonable delays in obtaining the same.

As soon as the bank informs the customer that the cheque has been lost, then the customer can take precautions and inform the drawer of the cheque to stop the payment of the cheque. It may however be noted that the probability of losing the physical instrument in the hands of paying bank is remote, in the locations covered by CTS as clearing is undertaken on the basis of images.

Will I receive an acknowledgement for cheque deposited in a bank for collection?

There are two types of facilities that banks provide for cheques:

They provide a drop-box facility where you can drop-off your cheque. You will not get an acknowledgement for a cheque dropped at the drop-box.
They also have collection counters where you can get an acknowledgement when you give the cheque for collection at the bank branch’s counter.

I issued a cheque to my landlord at the beginning of the month for rent and when he en-cashed the cheque there was no money in my bank account. Can I be held liable?

Yes, you can be held liable for cheque bouncing. Typically a cheque is valid for 3 months from the date on which it is issued. When you make a promise to your landlord to pay your rent through a cheque, it is understood your promise is good for 3 months. Even if your intention was to pay your rent when you wrote the cheque, but a few days later, your account balance went below the amount required to pay the rent cheque on the day your landlord presented the cheque for payment, you have still committed an illegal act. The relevant factor is not your intention to pay when you wrote the cheque, but whether your promise can be honoured on the day your landlord presents the cheque at his bank.

I lost my cheque return memo. What do I do?

Write to your bank requesting another cheque return memo. Your bank will give you another copy of the cheque return memo which will be in duplicate.

If I have filed a cheque bouncing case against someone, can I ask the Court for some interim compensation?

Yes, if you have filed a cheque bouncing case against someone, you can apply for interim compensation to be given to you. This compensation would be 20 percent of the amount of cheque that was bounced. Once the court passes the order for the compensation, you should be paid within 60 days by the accused person. In exceptional cases they can even pay you in 90 days. If the final court order in the case is in your favour, the award amount that you will receive will be after deducting the compensation amount paid in the beginning of the case. But in case the final order is not in your favour, you must return the initial compensation amount with interest.

What is the format in which I should send a notice to the issuer/drawer of the cheque?

Any demand made after the dishonour of cheque will constitute a notice. It is not necessary that the notice should be sent by Registered Post alone, it could be sent even by fax. It is not necessary that the notice should be in any particular form or style. What is essential is that there should be a demand to pay the dishonoured cheque amount.