Cheque Dishounor and Legal Remedies in Bangladesh in 2024 and how to deal with it
Cheque dishonor is a recognized crime in Bangladesh. Checks are increasingly being employed as a means of financial transaction between businesses and people. As a result, cheque dishonour or bounce is a prevalent problem these days. As a result, the recipient of the cheque must have an effective and adequate remedy.Bangladesh has a statute called the Negotiable Instruments Act of 1881, which addresses several remedies and topics regarding cheque dishonor. Section 138 of this Act allows you to register a complaint about cheque dishonor.
What is Negotiable Instrument?
A negotiable instrument is any document that guarantees the payment of money, whether on demand or at a future date.
Types of Negotiable Instrument
Promissory Note:
A promissory note is a written instrument signed by the maker that contains an unconditional pledge to pay a specified sum of money to a specific person or the bearer of the instrument at a defined or determinable future period or upon demand. The term “on demand” refers to a note that is payable immediately or upon sight.
Bill of Exchange:
A written document signed by the maker that contains an unconditional order directing a certain individual to pay money to a specific person or the bearer of the instrument at a set or determinable time or on demand. Such instrument must contain an order to accept or pay, and the acceptor must accept the direction/order; otherwise, the instrument is not a bill of trade.
Cheque
A bill of exchange drawn on a specified banker and is payable only on demand; it is given for immediate payment.
Definition of Cheque ?
Section 6 of the Negotiable Instruments Act, 1881 defines the term “cheque” as follows: A “cheque” is a bill of exchange drawn on a specific banker that is not stated to be payable other than on demand.
A cheque is a written order or request issued to a bank or persons engaged in the banking industry by a party in possession of money, requesting that they pay a specific sum of money to a person therein named, or bearer, or to such person or order, upon presentation.
Kinds of Cheque
- 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
Advantages of Making a Payment via Cheque:
• More convenient than carrying cash around
• Payments can be stopped if necessary
• A safer means of making payment if cheques are crossed
• It eliminates the risk of making counting mistakes as in the case of cash notes
• Can be posted more cheaply
• Can be traced if lost and can also be post-dated
DISADVANTAGES OF CHEQUE
• Cheques are not legal tender, and other creditors may refuse to accept them.
• They are worthless if the drawer does not have cash in his/her account.
• They are not appropriate for small amounts.
• People without bank accounts may have difficulties if the cheque is crossed. Bank charges are levied on checkbooks and dishonoured cheques.
Cheque Dishonour
To Dishonour a cheque means is to refuse or neglect to pay it at maturity.
Reason of Dishonour
- 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 Dishonour
Offences pertaining to cheque dishonor or cheque bounce are handled with in accordance with the provisions of the Negotiable Instruments (N.I) Act 1881. This Act applies to the whole of Bangladesh. The Act is considered a special law, and its provisions have precedence over any ordinary law.
Relevant law for Dishonour of Cheques
What actions can be taken for Cheque Dishonour?
In the event that a cheque is dishonored, the drawee may initiate a complaint against the drawer. The plaintiff must determine where to bring a case for cheque dishonor. The case must be filed at a Cognizance Magistrate Court. The bank branch where the disputed cheque was submitted must be within the Court’s jurisdiction.
Steps to be take for filing a Case under 138 of NI Act
The conditions that must be followed in order to file a case for cheque dishonour under section 138 and 140 of the N.I Act are discussed below:
Step One:
Present the cheque to the bank within 6 months after issuance or validity. Furthermore, it can be presented to the bank as many times as the drawer directs the payee to.
Step Two:
Within 30 days of the cheque being returned/dishonoured, send a written notification to the drawer demanding payment.
Step Three:
The drawer has 30 days from the date of notice to pay.
Step Four:
If the drawer does not pay within the specified time frame, the drawee must file a case within 30 days after the expiration of the payment deadline.
Claim against Companies for Dishonour of Cheque
If a company commits an offence under section 138, the company, as well as any person who was in control or responsible to the company at the time of the offence, is liable for the offence under section 140 of the N.I Act.
Any person must not be held accountable under section 140 if he can demonstrate that he had no knowledge of the offence being committed or that he took all reasonable precautions to avoid it from being committed.
For a claim against a company, serving a notice of dishonour on the firm is sufficient; there is no need to serve notice on all partners involved in the commission of the offense.
Essential papers you need to initiate a case against a dishonoured cheque in Bangladesh
- 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 Dishonour
The punishment for the offence under the Negotiable Act of 1881 is imprisonment for up to a year, a fine of up to three times the value of the cheque, or both.
Appeal
The penalty imposed by the court can be appealed. At least 50% of the amount stated in the cheque shall be given to the court that issued the penalty and appeal.
What happens when the drawer of the cheque dies?
Drawer dies in the N.I case:
The case ends with the accused’s death, and the complainant’s only option is to initiate a civil complaint against the accused’s legal heirs. This is because the case under Section 138 of the N.I Act is criminal in character, and criminal obligation cannot be transferred to the accused’s legal successors.
Drawer dies in the appeal case:
If the drawer of the cheque dies while the appeal case is pending, the appeal (with the exception of an appeal from a fine penalty) will be dismissed. The complainant must pursue a civil court proceeding to recover money under a fine sentence against the deceased accused’s lawful heirs.
Alternative treatments are possible when the check is outdated:
If a cheque is not given to the bank and dishonoured within the time frame allowed in the legislation, it becomes outdated. When a cheque becomes out of date and you are unable to initiate a complaint under the Negotiable Instruments Act of 1881, you have four other options for seeking relief.
The possessor in due course can take the following actions:
(i) Sections 406 and 420 allow holders to file cases for breach of trust and cheating.
(ii) Money Suit: The limitation period for a money suit is three years. As a result, even if the holder is unable to bring a case under the NI Act, he will be able to retrieve the money through a civil suit.
(iii) Summary Suit: According to Order 37 of the Code of Civil Procedure, cheques are negotiable instruments. As a result, in due time, the holder may file a summary suit before the district judge, which will be dismissed summarily. The limitation period for a summary lawsuit is also three years.
Can a loan guarantor be held accountable for the loanee’s dishonoured cheque?
When the bank approves the loan, one or more guarantors are required in addition to the borrower. It is a well-established legal principle that actions under Section 138 of the N.I Act cannot be taken against the guarantor for dishonoring a cheque issued by the loanee. However, he may be held civilly liable for the debt he guaranteed.If the borrower fails to repay the loan, the guarantor will cover the remaining balance. If the guarantor issues a cheque to make such payment, he is liable under section 138 if it is dishonoured when presented for encashment.
Arbitration and Cheque Dishonour
Arbitration clauses in agreements:
If any party to the arbitration institutes any legal proceeding against the other party on any matter agreed upon in the agreement, Section 7 of the Arbitration Act 2001 states that whatever the current law in force directs, it will be treated as a non-obstante clause, and the court will not have jurisdiction to hear any other legal proceedings other than those provided for in the Arbitration Act 2001.
Negotiable Instruments Act 1881 and Arbitration Act 2001
Both the N.I Act and Arbitration Act 2001 are special laws. The N.I Act contains provisions for filing criminal cases for offences that fall under this Act. On the other hand, arbitration proceedings are considered as civil matters. Moreover, according to customary law, if any dispute arises between ordinary law and special law, unless stated otherwise the special law shall always prevails.
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