Implications when your cheques get bounced
Most of us focus on the legal implications of a cheque bounce but there are three very clear issues you need to understand here.
- First, there is a major reputational issue. An occasional cheque bounce is understandable but if cheques bounce consistently, then it creates a bad image with the bank and also with the clients and vendors you are dealing with.
- Secondly, there is an important credit score issue. When cheque bounces are frequent, the bank is obliged to report your PAN to CIBIL. That would mean your CIBIL score would come down resulting in a lower CIBIL score and loan rejections in future.
- Lastly, there are legal implications. Civil and criminal cases are only possible when the liability can be proved. For example, if you give cheque as an advance or a donation, you cannot be sued for that as there is still no liability. Civil cases lead to monetary compensation while criminal cases can also lead to imprisonment.
When the cheque issued by you bounces, there is a reputational issue with banks and clients which is normally more important than the legal issue. The legal process moves slowly and there are more than 45 lakh cheque bounce cases pending with courts. But here is what you can do in your own interest; partly prophylactic and partly therapeutic.
- When the cheque dishonour is due to technical issues like overwriting or signature mismatch, you must make an effort to immediately rectify the issue. Ideally, you can agree to do a NEFT / RTGS transfer to your client so that business relations are maintained.
- There is a debate on whether stopping a cheque would amount to dishonour. If the balance in your account on the pay date is less than the amount of the cheque, then the bank will treat the stop payment also as cheque dishonour.
- The cheque dishonour problem must be addressed at multiple levels. Firstly, your online banking account reveals if your account is short-funded. You have 4-5 hours at your disposal to fund your account appropriately. This protects your credit standing.
- When the cheque gets dishonoured, the first step must be to proactively inform the payee of the cheque and compensate them immediately along with bank penalty. In case, you are in genuine financial crunch, you can be frank with the payee and ask them for more time. Remember, cheque dishonour still has credit rating implications.
- Most business people prefer to settle cheque dishonour cases outside the court. In case, the payee threatens you with legal consequences, reason with them for an out-of-court settlement. Most people agree as long as their business is not impacted.
- If the payee does issue a legal notice, he/she is obliged to give you 30-days notice to pay the money. It is in your interest to pay up the sum to the payee within the grace of 30 days so that you can protect your reputation and avoid legal hassles.
- If the case finally does go to court, it can drag for a long time. But the reputational damage can be substantial. Typically, lawyers will give both of you one more opportunity to settle the case amicably, which is mostly in mutual interest.