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Corporate and Institutional Cheque Bounce Cases

Corporate and Institutional Cheque Bounce Cases

19-Mar-2025

Cheque Bounce

Answer By law4u team

Cheque bounce cases involving corporate and institutional entities in India are governed primarily by Section 138 of the Negotiable Instruments Act, 1881 (NI Act). Here’s a detailed overview of corporate and institutional cheque bounce cases: Legal Provisions: Section 138, NI Act: Makes dishonor of a cheque due to insufficient funds or other reasons a criminal offense. Section 141, NI Act: Extends liability to companies and institutions, including their directors, partners, or persons in charge of business operations. Section 142, NI Act: Specifies the procedure for filing complaints. Key Aspects of Corporate & Institutional Cheque Bounce Cases: Who Can Be Held Liable? The company or institution issuing the cheque. The director(s) or authorized signatory who signed the cheque. Any person responsible for the company's day-to-day affairs related to financial transactions. Process of Filing a Case Demand Notice: The payee must send a legal notice within 30 days of receiving the bank’s cheque return memo. 15-Day Waiting Period: The drawer has 15 days to make payment after receiving the notice. Filing a Complaint: If no payment is made, a complaint can be filed in the court within 30 days after the 15-day waiting period. Jurisdiction Cases can be filed in the court where the payee’s bank is located (per Supreme Court ruling in Dashrath Rupsingh Rathod v. State of Maharashtra, 2014). Defenses for Companies & Institutions The cheque was issued without authorization. There was no legal debt or liability. The signatory was not in charge of financial decisions. Penalties Imprisonment up to two years or a fine up to twice the cheque amount, or both. Companies may face regulatory action and reputational damage. Civil Remedies Apart from criminal proceedings, the payee can file a civil suit for recovery under the Civil Procedure Code and Insolvency & Bankruptcy Code (IBC) for corporate defaulters.

Answer By Ayantika Mondal

DEAR CLIENT, In India, cheque bounce cases involving corporations and institutions are governed by the section 138 and section 1141 of the negotiable instruments act, 1881. Liabilities of companies and institutions When a cheque issued by a company partnership firm, or other legal entity bounces due to insufficient funds or exceeding the agreed arrangement the company itself is primarily liable. However, under section 141 the law extends this liability to: • Directors • Partners • Office bearers In the corporate or institutional cheque bounce cases, the following individuals may face liability if they were responsible for the business management: • Managing directors and whole-time directors • Authorized signatories • Key decision makers Exemption independent and non-executive directors as well as employees without decision making authority, are not liable unless it is proven. The legal procedure • Demand notice • Filing a complaint • Court proceedings Punishment If the person is convicted under the section 138 of NI, act the following are the penalties • Imprisonment up to two years • Fine up to twice the cheque amount • Compensation which court may also award compensation to the complainant. WE HOPE THIS CLARIFIES YOUR QUERY. PLEASE FEEL FREE TO REACH OUT FOR FURTHER ASSISSTANCE. THANK YOU.

Answer By Anik

DEAR CLIENT, In the India the corporate and institutional cheque bounce cases are governed by thee primarily by the provisions set forth in the negotiable instruments act, 1881 which is specifically section 1338 which addresses the offence of the dishonor of the cheques. When cheques are issued by the corporation or an institutional bounce due to insufficient funds or exceeding the arrangements and it triggers the legal consequences similar to that in the individual cases. When it comes to the case of corporate entities, the company itself can be held liable for the cheque bounce. However, liability does not stop there but under the section 141 of the negotiable instruments act, 1881 it says that a cheque issued on behalf of a company bounces, the directors or officers of the company who are responsible for the company’s affairs may also be held liable criminally. This person such as managerial positions, managing directors whole time directors and other key managerial positions who facilitated the issuance of the cheque. To initiate legal proceedings in such cases, the payee must serve a notice to the company and the concerned responsible individuals within the 30 days of receiving information about the dishonor of the cheque. If the company or its directors fails to pay the amount due within 15 days from the date of receipt of the notice, the payee can then file a criminal complaint in a competent court. The penalty for dishonor includes a fine that can be twice the amount of the cheque and potential imprisonment for up to two years. It is crucial to note that courts have not often held that merely being a directors or officer does not automatically imply liability. The concerned individuals must have been in charge of and responsible for the company affair in relation to the cheque transactions. WE HOPE THIS CLARIFIES YOUR QUERY. PLEASE FEEL FREE TO REACH OUT FOR FURTHER ASSISSTANCE. THANK YOU.