A cheque bounce occurs when a bank rejects a cheque due to insufficient funds in the issuer's account, a mismatched signature, or an expired validity period. This is considered a financial offense and can harm the recipient, causing delays in payments or losses. In many jurisdictions, cheque bouncing is a criminal act, and the recipient can initiate legal proceedings against the issuer under specific laws. To avoid cheque bounces, issuers must ensure adequate account balances and accurate cheque details before issuance. A cheque is said to have bounced when a bank refuses to pay in exchange for it due to insufficient funds, overwriting on the cheque, a mismatch of signatures, an expired cheque, etc. It is also considered a check dishonor in Nepal. Cheque bouncing is a condition in which the receiver is unable to exchange the issued cheque for a variety of reasons. According to the law, cheque bouncing is one of the causes of check dishonoring.
Cheque bounce is a condition in which a bank refuses to exchange the issued cheque to the receiver due to reasons such as:
- Insufficient funds or
- Overwriting on the cheque or
- Mismatch of signature or
- The signature is absent or
- Problem with the cheque’s date or
- Account differences in numbers and words
In the context of Nepal, remedies against cheque bounces have been addressed through two distinct laws i.e.
- Negotiable Instrument Act, 2034 (1977)
- Banking Offence and Punishment Act, 2064 B.S. (2008)
The case can be filed in two ways
- Filing a case (cheque anadar) directly in the district-level court applying the Negotiable Instrument Act, 2034 (1977)
- Filing an FIR in the respective police station by applying Banking Offence and Punishment Act, 2064 B.S.
Negotiable Instruments Act, 2034:
According to the Act, a cheque bounce occurs when a person intentionally transfers a cheque to someone who does not have a deposit in the bank or has insufficient funds. Following the commission of such an act, the amount mentioned in the cheque, as well as interest on it, shall be recovered from the drawer and paid to the holder, and he or she shall be punished with imprisonment for up to three months, a fine of up to three thousand rupees, or both. This Act defines cheque bounce as an individual party offense, requiring the aggrieved to file a complaint in the relevant District Court within five years of the cause of action.
Process and remedies of Cheque dishonoring:
Section 108 of the Negotiable Instrument Act, 1977, mentions that a complaint shall be filed within five years from the date of the cause of action to file such a complaint. The process for filing the case at the concerned district court is listed below:
- Step 1: Filing of a statement of claim (phiradpatra) by the party
- Step 2: Submission of written reply by another party (pratyuttarpatra).
- Step 3: Collection of evidence and examination of witnesses
- Step 4: Hearing and final decision by the district court
- Step 5: Filing an appeal at a high court, if any of the parties is not satisfied with the decision rendered by the district court.
Remedies of Cheque Dishonor :
Section 107 (A) of the Negotiable Instrument Act, 1977, provides the following remedy to the affected party.
- Recovery of the amount mentioned in the Cheque with interest
- Imprisonment not exceeding three months or fine up to Rs. 3000 or both
Banking Offence and Punishment Act, 2064 B.S.
The Act forbids anyone from drawing a cheque to knowingly make a payment from an account where he or she has obvious knowledge that the account does not have enough balance to cover the amount of the cheque drawn. If a person commits such an offense, he or she is liable to pay the principal amount as well as a fine based on the amount of the transaction and imprisonment for up to three months. The Act states that a FIR must be filed within one year of the offense occurring. This Act defines cheque bounce as a state-party offense.
Punishment depends on the basis of the claimed amount,
| Claimed Amount | Imprisonment |
|---|---|
| Up to 10 lakh | Up to 1 year |
| Above 10-50 lakh | 1-2 years |
| Above 50 lakh-1 crore | 2-3 years |
| Above 1 crore | 3-5 years |
Procedure to file a case:
Section 17(1) of the Banking Offence and Punishment Act, 2064 states that a complaint must be filed within one year of the date of the cause of action. The procedure for filing the case in the relevant District Court is outlined below:
- Step 1: Submission of the first information report (FIR) at the concerned police station.
- Step 2: Investigation is done and the report is submitted to a government attorney.
- Step 3: Filing of a charge sheet at the district court by the government attorney
- Step 4: Hearing for bail
- Step 5: Examination of witnesses
- Step 6: Decision
- Step 7: Filing an appeal at the High Court, if any of the parties is not satisfied with the decision of the district court.
Remedies:
The Banking Offence and Punishment Act, 2008, provides the following remedy to the affected party:
- Recovery of the amount mentioned in the cheque with interest
- Imprisonment not exceeding three months
- Fine of the amount mentioned in the cheque
Legal Opinion
The case under the Negotiable Instruments Act allows the aggrieved to recover interest on the drawn amount, whereas the Banking Offence and Punishment Act, 2064 does not recover interest. Furthermore, when the case is initiated as a state-party offense, the court's preliminary focus is on issuing the fine to the defendant, and once a fine is obtained, a separate process begins to recover the amount involved.