If the cheque issuer fails to make a payment, the payee has the right to prosecute the drawer legally.
The payee may legally sue the drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards payee.If the cheque was issued as a gift, towards lending a loan or for unlawful purposes, then the drawer cannot be prose
The legal action can be as per the Negotiable Instruments Act, 1881 This Act has been amended many times since 1881.
The dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with a monetary penalty or with both according to Section 138 of the Act
Before proceeding legally a chance has to be given to the drawee in the form of notice in writing only. The notice to the drawer is to be issued within 30 days from the date of receiving "Cheque Return Memo" from the bank. The notice should state that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee can file a criminal case under Section 138 of the Negotiable Instruments Act. The complaint should be registered in a magistrate's court within a month of the expiry of the notice period. It is essential to consult an advocate who is well versed and experienced in this area of practice,
Certain conditions are to be fulfilled in order to use the provisions of Section 138 which are mentioned below.
1. The cheque should have been drawn by the drawer from his account.
2. The cheque should have been returned or dishonoured due to insufficient funds in his account.
The court will issue summons and hear the matter. If found guilty, the defaulter can be punished with the monetary penalty which may be twice the amount of the cheque or imprisonment for a term which may be extended to two years or both. The bank can stop the cheque book facility and close the account for repeat offences of bounced cheques.