In Bangladesh, cheque dishonor is a criminal. Check is a common financial tool for businesses and people today. Thus, cheque dishonor or bounce is widespread nowadays.
Thus, the cheque recipient must have enough recourse. Negotiable Instruments Act, 1881, covers cheque dishonor remedies and talks in Bangladesh. This Act allows cheque dishonor cases under section 138.
What is Negotiable Instrument?
A negotiable instrument, as defined by legal principles, refers to a document that provides an unequivocal guarantee for the payment of a specified sum of money, which may be payable either upon demand or on a predetermined future date.
Types of Negotiable Instrument
A promissory note, herein referred to as the “instrument,” is a legally binding document executed by the maker, which unequivocally expresses an obligation to remit a specific sum of currency to a designated individual or to the holder of said instrument, either at a predetermined or ascertainable point in the future or upon request. The aforementioned term, commonly referred to as “on demand,” signifies that a promissory note is required to be paid without delay or upon presentation.
Bill of Exchange:
A legally binding document executed by the party of interest, encompassing an unequivocal directive, instructing a specific individual to effectuate the transfer of monetary funds to a designated individual or to any individual in possession of said document, either at a predetermined or ascertainable future date or upon immediate request. The aforementioned instrument must include a directive for acceptance or payment, and said directive must be acknowledged by the acceptor. Failure to meet this requirement renders the instrument ineligible to be classified as a bill of exchange.
The undersigned hereby presents a legal document, commonly referred to as a bill of exchange, which has been duly drawn upon a designated banking institution and is exclusively payable upon request. This aforementioned bill of exchange has been issued for the sole purpose of facilitating prompt and immediate payment.
Definition of cheque dishonor ?
Section 6 of the Negotiable Instruments Act, 1881 defines cheque dishonor : A “Cheque” is a bill of exchange drawn on a specific banker and payable on demand.
A cheque is a written order or request to a bank or bankers from a party with money to pay a particular person or order a specified amount of money on presentation.
Kinds of Cheque dishonor
- Cash/Bearer Cheque
- Account Payee Cheque
- Contents of a Chque
- Date of Issue
- Name of the Recipient
- Amount in Numerical and Words
- Signature of the Payee
To dishonor a cheque is to willfully and intentionally decline or neglect the fulfillment of its payment obligation upon reaching the specified maturity date.
Reason of Cheque dishonor
- Insufficient Fund.
- Amount in figure and word differs
- Cheque out of date/post-dated Cheque
- Drawer’s Signature Differs
- Payment stopped by drawer.
- Crossed Cheque; To be presented through a Bank
- Payee’s endorsement required
- Effects not cleared, may be presented again
- Payee’s endorsement irregular/Bank’s Confirmation required
- Alterations in date/figures/words require drawer’s full signature
- Clearing stamp required/requires cancellation/endorsement of the Bank
- Addition to Bank discharge should be authenticated
- Cheque crossed Account Payee only
- Collecting Bank’s Discharge irregular/required
- Not drawn on us
- Mutilated Cheque
- Account Closed
- Refer to Drawer
Legal Framework for Cheque dishonor
The matter at hand pertains to the infractions concerning the dishonor of cheques or the occurrence commonly referred to as “cheque bounce.” It is imperative to address this matter within the framework established by the provisions set forth in The Negotiable Instruments (N.I) Act of 1881. The aforementioned Act shall apply to the entirety of the jurisdiction of Bangladesh. The aforementioned Act is to be regarded as a statute of particular significance, and its stipulations shall take precedence over any standard legislation.
Relevant law for dishonor of Cheques
What actions can be taken for Cheque dishonor ?
In the event of a dishonour of a cheque, it is within the prerogative of the drawee to initiate legal proceedings against the drawer. The plaintiff is faced with the decision of determining the appropriate jurisdiction in which to initiate legal proceedings pertaining to the dishonour of a cheque. The aforementioned matter necessitates the initiation of legal proceedings in a court of law, specifically a Cognizance Magistrate Court. The branch of the aforementioned financial institution, to which the subject cheque that is currently under dispute was presented, must unequivocally adhere to the jurisdictional boundaries as prescribed by the Court in question.
Steps to be take for filing a Case under 138 of NI Act
The ensuing discourse shall elucidate the requisite stipulations that necessitate adherence for the initiation of legal proceedings pertaining to the dishonor of a cheque, as prescribed under the provisions of Section 138 and Section 140 of the Negotiable Instruments Act.
Step One: The aforementioned cheque must be expeditiously presented to the designated financial institution within a period of six months subsequent to its issuance or within the duration of its lawful validity. Furthermore, it is within the purview of the drawer to direct the payee to present said instrument to the bank on multiple occasions, should they so choose.
Step Two: Pursuant to the applicable legal provisions, it is imperative that a written notice be dispatched to the drawer of the aforementioned cheque, explicitly and unequivocally demanding payment, within a period of thirty (30) calendar days commencing from the precise date on which the said cheque was returned or dishonored.
Step Three: The party designated as the drawer shall be afforded a period of thirty (30) days, commencing from the date of the aforementioned notice, within which to fulfill the obligation of making the payment.
Step Four: In the event that the drawer neglects to fulfill their payment obligations within the designated timeframe, it is incumbent upon the drawee to initiate legal proceedings within a period of 30 days subsequent to the expiration of the initial 30-day grace period granted to the drawer for payment.
Claim against Companies for Dishonour of Cheque
In the event that the offense as delineated in section 138 is perpetrated by a corporate entity, it is imperative to note that said company, in conjunction with each individual who, during the commission of said offense, held a position of authority or was entrusted with responsibilities on behalf of the aforementioned company, shall be held accountable for the offense as stipulated in section 140 of the Negotiable Instruments Act.
No individual shall bear responsibility pursuant to section 140 provided that they can establish their lack of awareness regarding the perpetration of the offense or demonstrate that they undertook all reasonable measures to avert the commission of said offense.
In the matter of a claim against a Company, it is hereby advised that the act of serving a notice of dishonour upon the firm shall be deemed sufficient and satisfactory. It is imperative to note that there exists no requirement to serve notice upon each and every partner involved in the commission of the alleged offence.
Essential documents you need if you would like to file a case against a dishonoured cheque in Bangladesh
Before proceeding to file a case, a complainant must keep some essential requirements in mind which are as follows:
- The dishonoured cheque
- Bank slip regarding cheque dishonour
- Copy of legal notice
- Postal receipt and acknowledgment letter of legal notice
- Copy of newspaper where legal notice is published, if any
- Authorization letter or power of attorney if ‘Authorized Agent’ files the case
- List of witnesses
- Costs of the case such as Court fee, lawyer’s fee etc.
- Government or private legal aid if unable to bear the costs of the case
- Intention to go for settlement with the offender to get the money
Punishment for Cheque dishonor
The penalty for the offense pursuant to the Negotiable Instruments Act of 1881 entails the potential imposition of a term of incarceration not exceeding one year, or a monetary fine not exceeding three times the value of the check, or both.
The sentence awarded by the court may be subject to potential grounds for appeal. Pursuant to the court’s ruling and subsequent appeal, it is imperative that a minimum of 50 percent of the sum stipulated in the aforementioned cheque be remitted to the court.
What happens when the drawer of the cheque dies?
Drawer dies during the N.I case:
The case gets over on the death of the accused and the only remedy left with the complainant is to file a civil case against the legal heirs of the accused person. This is because the case under section 138 of the N.I Act is criminal in nature and criminal liability cannot be shifted to the legal heirs of the accused person.
Drawer dies during the appeal case:
If the drawer of the cheque dies during the pendency of the appeal case, then the appeal (except an appeal from a sentence of fine) shall abate. The complainant has to file a case in the civil court for recovery of money under the sentence of fine against the legal heirs of the deceased accused.
Alternative remedies available when the cheque is outdated:
If a cheque is not being presented before the bank and dishonoured within the time specified in the act, then the cheque becomes outdated. When a cheque becomes outdated and it is not possible to file a case under the Negotiable Instrument Act 1881, then there are four other alternative ways through which you can seek remedies.
The holder in due course can take the following actions-
(i) Cases under section 406 and 420: the holder in due course can file a case for Breach of Trust and Cheating.
(ii). Money Suit: the limitation period for money suit is 3 years. Therefore, even if the holder in due course cannot file a case under the NI. Act but he will have an option to file a civil suit for claiming the money.
(iii). Summary Suit: as per order 37 of the Code of Civil Procedure, cheques are a negotiable instrument. Therefore, the holder in due course can file a summary suit before the district judge which will be summarily disposed of. The limitation period for summary suit is also 3 years.
Can a guarantor of loan be held liable for dishonor of Cheque issued by the loanee?
At the time of loan approval by the bank, it is imperative that one or more guarantors be present alongside the borrower. It is an established and well-recognized legal principle that in cases involving the dishonor of a cheque issued by the borrower, legal actions pursuant to Section 138 of the Negotiable Instruments Act cannot be initiated against the guarantor.
Notwithstanding, it is possible that he shall be subject to civil liability for the purpose of fulfilling the obligation to remunerate the debt that has been guaranteed by him.In the event that the borrower is unable to fulfill their obligation to repay the borrowed amount, it shall be the responsibility of the guarantor of the loan to assume said repayment.
In order to effectuate said payment, it is imperative to note that should the guarantor choose to issue a cheque, he shall bear legal responsibility pursuant to section 138 in the event that said cheque is dishonored upon presentation for the purpose of encashment.
Arbitration and Cheques dishonor
Arbitration clause in agreements:
In the event that a party to the arbitration initiates any legal action against the opposing party regarding any matter that has been mutually agreed upon in the agreement, it is important to note that Section 7 of the Arbitration Act 2001 stipulates that regardless of any prevailing laws, such actions shall be regarded as non-obstante clauses. Consequently, the court shall be divested of jurisdiction to entertain any legal proceedings other than those specified within the provisions of the Arbitration Act 2001.
Negotiable Instruments Act 1881 and Arbitration Act 2001
The aforementioned statutes, namely the Negotiable Instruments Act and the Arbitration Act of 2001, are indeed classified as specialized legislations. The N.I Act encompasses provisions pertaining to the initiation of criminal proceedings for offenses falling within the purview of said Act.
However, it is important to note that arbitration proceedings are commonly regarded as civil matters. Furthermore, in accordance with established legal precedent, in the event of any conflict between general law and specific law, absent any explicit contrary provision, the specific law shall invariably take precedence.
In summation, it is crucial to emphasize that in matters pertaining to dishonored checks, the temporal element of diligently adhering to all requisite protocols prior to initiating a legal action holds utmost significance. The NI Act, being both balanced and concurrent with the current time, possesses the necessary provisions to effectively address and provide suitable remedies in instances involving dishonored cheques.