What to Do After a Cheque Is Dishonoured
The remedy under the Negotiable Instruments Act is unusually unforgiving about sequence and timing. Each step has to follow the last, within the periods the statute fixes, and the whole thing is proved from documents rather than from recollection. This note explains the shape of it.
Guide
Start with the return memo
When a cheque is returned unpaid the bank issues a memo stating why. That memo is the single most important document in the matter, for two reasons: it records the reason for dishonour, which determines whether the statutory remedy is available at all, and it carries a date from which the periods that follow are counted.
Keep the original. Keep the returned cheque with it. A photocopy of a return memo, without the cheque, is a weak foundation for a proceeding that will be scrutinised closely.
There are two remedies, not one
A dishonoured cheque can give rise to a complaint under section 138 of the Negotiable Instruments Act, 1881, which is a criminal proceeding against the drawer. It can also give rise to a civil claim for the money itself. They are separate proceedings, governed by different procedures, and pursuing one does not mean giving up the other.
Which to pursue, and whether to pursue both, is a decision about what the creditor actually wants — pressure, or a decree that can be executed against assets, or both. It is worth taking that decision deliberately at the outset rather than defaulting to whichever is more familiar.
The demand notice
The statutory route requires a written demand to the drawer within the period the Act fixes, counted from intimation of the dishonour. The notice has to identify the cheque and demand payment of the cheque amount. A notice that is vague about which cheque, or that demands something other than the cheque amount, has been held defective, and the complaint that follows fails with it.
How the notice is sent matters as much as what it says, because service is one of the most commonly contested issues in these matters. Send it in a way that produces evidence of despatch and delivery, keep the receipts and tracking records, and if an envelope comes back, keep it unopened.
The period allowed for payment
After the notice, the drawer has a period fixed by the statute in which to pay. The complaint cannot be filed during that period — it is not merely inadvisable, it is premature — and if payment is made within it, the criminal remedy does not arise.
The end of that period opens a further window, again fixed by statute, within which the complaint must be filed. These periods are short and they are counted from documents. This is the part of the process where matters are most often lost, and lost irrecoverably, on facts that were never in dispute.
The complaint and what supports it
The complaint is filed before the Magistrate having jurisdiction, which depends on where the cheque was delivered for collection rather than on where the parties live or where the debt arose. Filing in the wrong court costs time that these timelines do not allow.
The complaint has to be supported by the cheque, the return memo, the notice, proof of its despatch and service, and the material establishing what the cheque was given for. The Act works with presumptions that assist the holder of a cheque, but those presumptions are rebuttable, and a complaint built on a clear record of the underlying transaction is a very different proposition from one built on the cheque alone.
What not to do in the meantime
Do not re-present the cheque without advice. Re-presentation affects how the periods are counted and can complicate a position that was straightforward.
Do not accept part payment, or agree to a fresh arrangement, without recording what has been agreed and what happens to the existing remedy. An informal accommodation offered in good faith is frequently produced later as evidence that the debt was settled.
Checklist
Practical Checklist
- The original chequeRetained, not deposited again, and not marked or annotated.
- The bank's return memoThe original, showing the reason for return and its date.
- A record of the underlying transactionInvoices, ledgers, agreements or correspondence establishing what the cheque was issued for.
- The demand noticeIdentifying the cheque and demanding the cheque amount, sent within the period the statute allows.
- Proof of despatch and servicePostal receipts, tracking records and any returned envelope, kept unopened.
- A note of the datesEach date recorded from the documents as it occurs, not reconstructed afterwards.
- The correct forumEstablished by reference to the bank branch where the cheque was delivered for collection.
- A decision on the civil claimWhether the claim for the money is to be pursued alongside, taken at the outset.
Cautions
Common Mistakes
- Letting the notice period run outThe window is short and is counted from intimation of dishonour. Once gone, the statutory remedy may be gone with it, even though the debt is undisputed.
- Sending a vague noticeA notice that does not clearly identify the cheque, or demands the wrong sum, can defeat the complaint that follows it.
- Filing too earlyA complaint filed before the period allowed for payment has expired is premature.
- Not keeping proof of serviceService is contested more often than almost anything else in these matters, and it is proved from records kept at the time.
- Re-presenting without adviceIt changes how periods are counted and can complicate the position.
- Filing in the wrong courtJurisdiction turns on where the cheque was delivered for collection. Filing elsewhere wastes time that cannot be recovered.
- Settling informally without recording itAn accommodation not reduced to writing tends to reappear as a defence that the debt was discharged.
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About this note
Published by H.R. Legal Associate, advocates, Lucknow, for general information.
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Important
Disclaimer
This note is general information about an area of law. It is not legal advice, it is not an advertisement or a solicitation of work, and reading it creates no advocate–client relationship.
The periods fixed by the Act, how they are counted in a particular case, and which court has jurisdiction depend on the documents and on the current state of the law. Nothing here should be acted on without the dates being checked against the actual memo and notice in the matter.
Procedures, limitation periods, court fees, stamp duty, government charges and tax rates change, and what applies depends on the facts of the particular matter. Nothing here should be acted on without advice taken on your own documents, and no outcome is promised or predicted.
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If a question on this page touches something you are dealing with, it should be looked at on your own documents. Sending an enquiry does not create an advocate–client relationship, and confidential documents should not be sent through this website.