Understanding Cheque Bounce Due to Account Closure

A cheque bounce happens when a bank refuses to honor a cheque. One specific reason is when the issuer’s (drawer’s) account is closed before the cheque is presented. This situation can be particularly challenging, especially if the cheque was given for essential payments like salaries or wages.

Common Reasons for Cheque Bounce

Cheques can bounce for various reasons, including:

• Insufficient Funds: The account doesn’t have enough money to cover the cheque amount.

• Signature Mismatch: The signature on the cheque doesn’t match the bank’s records.

• Account Issues: The account is closed or frozen.

• Technical Errors: Mistakes like overwriting or illegible handwriting on the cheque.

Legal Implications in India

In India, the dishonor of a cheque is primarily governed by Section 138 of the Negotiable Instruments Act, 1881. This section deals with the penalties and legal actions related to cheque bounce cases.

Steps to Take When a Cheque Bounces Due to Account Closure

1. Issuing a Legal Notice: If a cheque bounces, the payee (the person receiving the cheque) should send a legal notice to the drawer within 30 days of receiving the bank’s dishonor memo. This notice demands payment of the cheque amount within 15 days from the date the drawer receives the notice.

2. Filing a Complaint: If the drawer doesn’t pay within the 15-day period, the payee can file a criminal complaint under Section 138 of the Negotiable Instruments Act. This complaint must be filed within one month after the 15-day period ends.

Potential Legal Remedies

• Criminal Proceedings: Under Section 138, if found guilty, the drawer can face imprisonment for up to two years, a fine up to twice the cheque amount, or both.

• Civil Suit for Recovery: The payee can also file a civil suit to recover the due amount, especially if substantial sums like salaries are involved.

Important Considerations

• Timely Action: It’s crucial to adhere to the timelines specified in the law for sending notices and filing complaints. Delays can weaken the case.

• Gathering Evidence: Maintain all relevant documents, such as the bounced cheque, bank’s dishonor memo, copies of the legal notice, and any correspondence related to the transaction.

Conclusion

Dealing with a cheque bounce due to account closure requires prompt and informed action. Understanding the legal framework and following the prescribed steps can help in effectively addressing the issue.

For personalized guidance and to navigate the complexities of such cases, it’s advisable to consult with legal professionals.

This article is for educational purposes only and does not constitute legal advice. For specific legal concerns, consult with a qualified legal professional.