PRINCIPLES & PRACTICES OF BANKING 2022 | BOUNCING OF CHEQUES

BOUNCING OF CHEQUES | JAIIB PPB 2022

In this post, we will learn all about the offence of bouncing of cheques for JAIIB PPB preparation 2022 Exams.

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BOUNCING OF CHEQUES

A dishonored cheque is sanctioned by the cheque issuer. It depends on the reason for the bounce.

If a cheque is dishonored because of insufficient funds in the payer’s account, it is an offense under the Negotiable Instruments Act 1881 (discussed in next para). The payer can be prosecuted for drawing a cheque on an account with insufficient funds. The payee can choose to prosecute the payer or allow the payer to reissue the cheque within three months. 

Bouncing a cheque is an offense under Section 138 of the Negotiable Instruments Act, 1881, punishable: 

• by a fine – which may extend to twice the amount of the cheque, or 
• imprisonment for a term not > 2 years, or both. 

In addition, banks also charge a penalty for dishonoring a cheque. The fine varies from bank to bank. Banks may have different penalties for the amount on which a dishonored cheque is drawn.

BOUNCE

When the payee presents a cheque to the bank for cashing and the cheque is returned unpaid by the bank with a note of insufficient funds, the cheque is considered to have bounced.

A bounced cheque can occur for several reasons, but if the cheque bounces due to insufficient funds in the composer’s account, it is an offense under the law. 

The bank must reject a cheque presented for cashing with a return stating the reason for lack of funds. In such a case, the payee of the cheque can issue a notice to the drawer to pay the amount of the cheque.

What is a bounced cheque?

A bounced cheque is slang for a cheque that cannot be processed because the account holder has insufficient funds available. 

Many times bad cheques are written unintentionally by people who simply do not realize that their bank balances are too low. 

A bounced cheque can result in: 

• fees, 

• restrictions on writing additional cheques, and 

• negative effects on your credit score. 

Writing too many unpaid cheques can also prevent you from paying merchants by cheque in the future. 

CIRCUMSTANCES THAT CAN LEAD TO CHEQUE BOUNCE 

The various situations that lead to cheque bounce are as follows:

• Insufficient Account Balance: If there is insufficient balance in the drawer’s account to cash the cheque, the bank will reject the cheque and return it to the payee with a notice of insufficient funds to cash the cheque amount.
• Amount or Digit Mismatch: If the cheque amount shown in words and figures do not match, the cheque will be returned.
• Damaged cheque: If the cheque is damaged or distorted and the details are not visible or there are marks or stains on it, the cheque will be rejected.
• Overwriting: If the signature of a bill of exchange or cheque amount or any other statement has been overwritten on a cheque, the cheque will be returned to be overwritten.
• Expired cheque: Once the cheque has been issued by the drawer, it must be presented for payment within three months. A cheque is void if it is not presented to the bank within three months. If a post-dated cheque is presented to the bank, it will be bounced.
• Signature Mismatch: If the drawer’s signature is unclear, missing or does not match the signature in the bank details, the cheque will be returned.

AVOIDING BOUNCED CHEQUES!

Consumers can reduce the number of bounced cheques they write by: 

• keeping a closer eye on their balances, 
• using an iron-clad system of recording every single debit and deposit in the cheque register as it occurs, or 
• by keeping tabs on their cheques with online banking.
• Consumers can also fund a savings account and link it to their account to cover overdrafts, or 
• consumers may choose to write fewer cheques or use cash, debit cards, instant online payments such as mobile wallets, PayPal, or similar means of discretionary spending.

REMEDY TO BOUNCED CHEQUE

Simple…… Resend the cheque!

When a cheque bounces due to: 

• overwriting, 
• mismatch of signature, 
• mismatch of numbers and 
• words of the amount of the cheque or 
• a damaged cheque, 

the payee may request the drawer to present another cheque to correct the error. If the drawer does not agree to present another cheque, the payee can initiate a civil action against the drawer to pay the amount of the cheque due to him and not the cheque.

So, here are a few things that you should keep in mind: 

• Make sure you issue the cheque to the payee’s account.
• Use the signature you have registered with the bank.
• Make sure you have sufficient balance in your bank account.
• Fill in all the information on the cheque carefully.

NEW RULE FOR BOUNCING A CHEQUE

According to a notification issued by the Reserve Bank of India (RBI) in early August 2021, customers whose: 

• financial activities revolve mostly around cheques or 
• those who just plan to use cheques 

will have to maintain a minimum bank balance. If this minimum balance is not met, the cheque will bounce. In addition, the customer who issued the cheque may also pay a penalty fee. Along with these changes, RBI has announced that the National Automated Clearing House, NACH, will be operational 24 hours a day.

Note: The new rule is applicable to all national and private banks. The rule change has been introduced to make cheque clearing faster and generally smoother. Since the new rule ensures that NACH will be operational on all days of the week, Sunday will also be the day that the entity can process and cash a cheque.

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