8 Most Important Reasons For Dishonor Of Cheques

Cheque Bounce Case
Reasons For Dishonor Of Cheques

Dishonor of the cheques Is The Most Common Financial Criminal Offense Committed During the Business Transactions. Before Going Into Technicalities, Let Us Understand A Few Standard Things One Must Keep In Mind While Drafting A Cheque. A Dishonor of Cheques Is A Negotiable Instrument Used As A Mode Of Payment In Business Transactions. It Is The Most Convenient Mode Of Payment Done Through A Bank As An Intermediary. It Is Also The Most Crucial Source Of Evidence In All Financial, Legal Matters – Reasons For Dishonor Of Cheques.

There Are a Few Things One Should Keep In Mind While Drafting The Cheque To Avoid Any Corrections Or Rejections Of The Cheque: 

  • Appropriate Date In The Format DD/MM/YYYY
  • Valid Signature
  • Name Of The Person Against Whom The Cheque Is Drawn
  • Amount In Figures And Words With Correct Spelling
  • Just In Case Any Alterations Are Made In The Cheques, Nature Against The Alteration Is Mandatory.
  • Also, Make Sure You Have Funds In The Account.

Having Said That, If Anything Goes Wrong With The Cheque, The Banks Will Not Process/Honor The Cheque, And You Will Receive A Message On Your Registered Mobile Number That The Particular Cheque Is Dishonored.

Just Imagine, We Deposit The Cheque In The Bank To Receive An Intimation Of Dishonor Amounts To Mental Harassment. A Cheque With Fewer Amounts Might Not Make A Big Difference, But The More Considerable The Amount, The More Is The Risk Against It. When You Give Cheques Against The Cheque You Deposited In The Bank, Only To Know That It Is Dishonored Will Damage Your Reputation In The Business And Give Rise To Legal Consequences And Procedures. Most People Aren’t Aware Of Why Cheques Are Dishonored, But It Is Essential To Know This To Help You File A Case Against That Person.

Most Reasons For Dishonor Of Cheques

Insufficient Funds:

One Of The Significant Reasons For Dishonor Is The Lack Of Funds In The Account Of The Drawer. Suppose The Cheque Amount Exceeds The Bank Account Amount. It Is Very Embarrassing As The Bank Cannot Honor The Payment, And Consequently, The Cheque Is Dishonored.

Also, Suppose The Drawer’s Account Has An Arrangement Of Passing Cheques Of Limited Amounts. In That Case, The Bank Will Not Process Any Amount Exceeding That Amount.

Material Alterations Made On The Cheque:

Once A Cheque Is Drawn, Any Alterations Made On The Cheque, Overwriting On The Cheque, Or Changes Made On The Face Of It, Will Undoubtedly Result In The Cheques.

Signature Issues:

A signature Plays An Integral Part In The Authentication And Verification Of The Cheque. Any Discrepancy Or Irregularities Found On The Signature Will Lead To Immediate Dishonor Of The Cheque.

Post-Dated Or Stale Cheques:

Date Plays A Vital Role In The Cheque. If The Cheque Is Presented Before The Due Date Mentioned On The Cheque, It Is Called A Post-Dated Cheque. If The Cheque Is Presented Three Months From The Cheque’s Date, It Is Called A Stale Cheque. In Either Case, The Bank Will have The Cheque As The Bank Will Not Accept These Cheques.

Stop Payment Instructions:

If The Drawer Orders The Bank To Issue A Stop Payment Of The Cheque, The Bank Will Not Clear It. In This Case, The Drawer’s Bank Will Not Initiate The Payment For The Said Amount.

Closed/ Frozen Account

If An Account Is Closed Or Is Inoperative For A Very Long Time, Then The Banks Will Not Honor The Cheques For Security Reasons. If The Government Freezes An Account, No Transactions Will Be Allowed On Those Accounts.

Death/ Insolvency/ Lunacy Of The Drawer:

Suppose The Banks Receive An Intimation Of Death, Insolvency, Or Lunatic Condition Of The Drawer. In That Case, Any Cheque Issued In That Time Frame Will Be Dishonored.

Invalid Account Number

This Is The Most Common Mistake Committed While Drafting The Cheque- An Invalid Account Number. Every Digit Matters While Writing A Cheque. Even One-Digit Being Misplaced Will Cause Much Loss To The Parties. Hence, The Teller Will Check The Account Number, Verify It And Then Clear The Cheque.

Legal Standpoint:

According To Section 138OfThe Negotiable Instrument Act, 1881– Dishonor Of Cheques For Whatever Is A Criminal Offense Punishable by Up To 2 Years Of Imprisonment Or a Fine, Which Can Be Twice The Amount Of a Cheque Or Both. Not Only Will The Drawer Be Subject To Legal Damages, But This Will Also Affect His Credit Score And Be A Hindrance In Any Other Banking Or Loan Transactions. At Times, The Banker Will Stop The Cheque Facility And Cheque Books To The Account Holder.

However, Suppose The Drawer Makes Payment Of The Dishonored Cheque Amount Within 15 Days From The Date Of Receipt Of The Notice. In That Case, The Drawer Does Not Commit Any Offense. Otherwise, The Payee May File A Complaint In The Court Of The Jurisdictional Magistrate Within One Month From The Date Of Expiry Of 15 Days Prescribed In The Notice – Reasons For Dishonor Of Cheques.

Legal Disclaimer: The information contained in this blog post is for general information and educational purposes only. Nothing contained in this blog post should be construed as legal advice from The Aran Law Firm or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.

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