One of the basic steps is that before depositing the cheque, inform the issuer and ask them to ensure the account is funded. You can also back this up with an email for your records. At times cheques bounce despite such reminders. What should you do then?
When the cheque gets rejected due to technical reasons
Technical reasons for cheque rejection can be many. For example, there could be a mismatch between the signature on the cheque and the master. At times, current account cheques get rejected because stamp is missing or have value cheques may not be countersigned by at least 2 directors. There are routine issues like mismatch between words and figures, overwriting on cheque, wrong date, use of non-CTS cheque etc.
In such cases, your first course of action must be to inform the issuer of the cheque and request them to transfer the money immediately via RTGS. To be on the safer side, also inform the supplier to whom you have issued the cheque to deposit the cheque only after getting the go ahead from you to avoid any embarrassment. When you intimate the issuer about the cheque rejection, make it a point to document the reasons in an email or fax. Such cases are not too serious and can be closed once the RTGS credit is received.
When the cheque is dishonoured due to insufficient funds
This becomes a slightly more delicate affair because there will be a charge on your bank account for cheque rejection. You need to immediately inform the issuer about the cheque bounce and ask him to make good the loss immediately along with the bank charges for cheque rejection. Apart from informing the issuer, keep documentary evidence of intimation like an email copy or fax copy.
It often happens that the issuer gets into financial difficulties and may ask you for 10-15 days time for paying the amount. You need to take a call based on your relationship, but most often such requests are accepted based on past relationships. Insist that the issuer send you a formal email or fax requesting for more time which will give greater sanctity to the commitment. Here again, if you have issued a cheque to another party, it is essential to inform them well in advance to delay the deposit in case you are not able to arrange funds from elsewhere. All such requests should be documented for future records.
What to do if the issuer looks like a wilful defaulter?
This is, perhaps the most complicated aspect about cheques bouncing. It often happens that the cheque bounces but the issuer is unwilling to commit about making the payment. You must take a quick call on whether it looks like a wilful default. Here are some steps.
- Intimate the issuer immediately about the cheque bounce and ask them for firm date commitments about the payment.
- If the issuer asks for more time, ask them to make a formal request but also insist they pay part of the amount to show commitment.
- Before you think of legal options, be clear that the cheque has been issued to you against verifiable and documented dues. Only in such cases you can explore legal options for recovery.
- If the issuer continues to waver on verifiable dues, the next step is to issue a legal notice under Section 138 of the Negotiable Instruments Act.
- Under this Act, it is mandatory to give one-month notice to the issuer to pay up the money and only after that can you file civil or criminal charges against the issuer.
- If the issuer has still not paid the amount on the lapse of 1 month, ask your lawyer to file a case against the issuer. However, you must remember that there are currently 8 crore cheque bounce cases pending in Indian courts.
Normally, legal methods are so convoluted that even lawyers suggest you negotiate across the table and close out before going to court. You have legal options like calling for the person to be declared bankrupt and attaching all their assets for recovery of dues. But this is a very long drawn affair. Normally, a simple legal notice is sufficient as most businesses have a reputation to protect.