What is a cheque bounce?
A cheque bounce occurs when a bank refuses to process a cheque due to insufficient funds in the account of the issuer (drawer) or other reasons such as a mismatch in the signature, the account being closed, or the cheque being presented after its validity period has expired.
As per Negotiable Instrument Act, 2034 (hereinafter ‘NIA’), a cheque bounce occurs when an individual intentionally issues a cheque to someone who either does not have a bank account or has insufficient funds. After this action is taken, the amount specified on the cheque, along with any applicable interest, will be collected from the person who issued the cheque to the recipient.
How to bounce a cheque in Nepal?
In Nepal, the process for bouncing a cheque involves the following steps.
Step 1: The payee deposits a cheque issued by the drawer. If the drawer’s bank account lacks sufficient funds, the bank returns the cheque, marking it as “cancelled” on the back.
Step 2: As per Section 56 of the NIA, the payee is permitted to bounce the cheque up to three times within six months from the date of issuance.
Step 3: To initiate the cheque clearance, the payee must have a bank account at a different bank than the one from which the cheque was originally issued. The payee fills out a deposit voucher and submits the cheque for clearing.
Step 4: The payee submits the cheque for clearing, and the process is determined by the type of clearing service selected:
Express Cheque Clearing: The status of the cheque (whether it is honored or bounced) is confirmed within one business day.
Normal Cheque Clearing: It may take 2-3 business days for the cheque to be cleared and for the status to be updated.
Step 5: If there are insufficient funds in the drawer’s account, the bank issues a cheque bounce statement (also known as a clearing report) and notifies the drawer, instructing them to make the payment within a specified timeframe.
Step 6: If the drawer does not clear the amount, the payee can repeat the process and bounce the cheque again. This step can be repeated up to three times within six months, each time obtaining a new cheque bounce statement.
Step 7: After three unsuccessful attempts of bouncing the cheque without receiving payment, the payee has two options:
Option 1: The payee can approach the bank with a copy of their citizenship and the cheque bounce statement to request that the drawer be blacklisted, leading to the freezing of the drawer’s bank account.
Option 2: The payee can initiate legal proceedings in court to recover the owed amount.
What are the legal remedies available under Nepalese law for a bounced cheque?
In Nepal, individuals affected by cheque bounce can pursue two types of remedies. The civil remedy under the NIA, which allows the payee to recover the cheque amount and any additional damages through a civil suit. Section 107(A) of the NIA, grants the affected party the right to recover the amount specified in the cheque along with applicable interest. It also establishes penalties for the drawer, including imprisonment for up to three months, a fine of up to Rs. 3,000, or both.
Alternatively, the criminal remedy under the Banking Offenses and Punishment Act 2064 (hereinafter ‘BOPA’) enables the affected party to file a complaint and register a First Information Report (FIR) against the drawer for dishonoring the cheque. The BOPA grants the affected party remedies for cheque dishonor, including the recovery of the amount specified in the cheque, imprisonment of the drawer for up to three months, and a fine equal to the amount mentioned in the cheque.
How is the legal process under Negotiable Instrument Act different than Banking Offense and Punishment Act?
The legal processes under the NIA and the BOPA in Nepal differ notably regarding interest and fines, punishment, costs, and time for legal proceedings. Here are the detailed differences that sets legal process for cheque bounce under NIA apart from BOPA.
Interest and Punishment
The NIA and the BOPA differ significantly in how they address interest claims. Under the NIA, the payee can claim interest on the dishonored cheque from the date of its bounce until the actual payment is made. The interest rate is generally the prevailing market rate (10% interest rate in the context of Nepal) and must be explicitly demanded by the payee during the legal proceedings. In contrast, the BOPA does not provide a mechanism for interest recovery, as its primary focus is on punishing fraudulent banking practices rather than compensating the payee through interest.
Regarding punishment, the NIA imposes relatively lenient penalties for cheque bouncing. It prescribes a maximum imprisonment of three months or a fine upto 3000 rs or both, as a deterrent. On the other hand, BOPA treats cheque bouncing as a more serious offense, particularly when associated with fraud. It imposes stricter punishments, including imprisonment for up to three months and fines that a fine amount equal to the cheque amount.
When it comes to fines (बिगो), the NIA limits the fine to the amount of the bounced cheque, aligning the penalty with the cheque’s value, whereas the BOPA imposes fines (बिगो). If the payee wins the case in the court of law, the fine amount can be recovered during the enforcement of the judgment process. Once the fine amount is recovered, only then will the payee be entitled to the owed amount. The payee cannot receive the owed amount until the fine is first recovered by the government.
Cost Implication
Attorney fee: Legal costs under the NIA involves hiring legal representation for civil proceedings, meaning the affected party must bear the attorney fees. In contrast, when pursuing a cheque bounce case through BOPA, a government attorney represents you before the court, eliminating the need for personal attorney fees.
Time Consideration
Under the BOPA, filing a case in court is a more time-consuming process. Initially, the aggrieved party must submit a FIR to the police, who then conduct a preliminary investigation. This investigation can take a significant amount of time, and only if there are sufficient grounds the District Attorney will file a charge sheet in the court.
In contrast, NIA offers a more streamlined approach for the aggrieved party. Under the NIA, the party can directly consult a lawyer and file a case in court without the need for preliminary investigations. This direct route allows for a quicker resolution, provided that the case meets the necessary criteria, such as jurisdiction, statute of limitations, and locus standi.
What is the procedure for taking action under the Negotiable Instrument Act (NIA) for a cheque bounce?
As discussed in question no. 2, section 108 of the NIA, outlines that a complaint regarding cheque dishonor must be filed within five years from the date the cause of action arises. The process for filing a case in the relevant district court involves several organized steps:
Filing a Statement of Claim: The aggrieved party initiates the legal process by submitting a statement of claim, referred to as phiradpatra (फिरादपत्र). This document details the grounds for the complaint, including the facts of the case, the amount in question, and any supporting evidence.
Response from the Other Party: Upon receiving the statement of claim, the opposing party is required to provide a response, known as pratyuttarpatra (प्रतिउत्तरपत्र).
Evidence Collection and Witness Examination: Following the exchange of claims and responses, both parties enter the evidence-gathering phase. It involves collecting relevant documents, securing witness testimonies, and preparing to substantiate their respective claims.
Hearing and Court Decision: After evidence has been collected and witnesses examined, the district court schedules a hearing. During this hearing, both parties present their cases, including arguments and supporting evidence. The court carefully evaluates the submissions before rendering a final decision based on the merits of the case.
Filing an Appeal: If either party is dissatisfied with the district court’s decision, they have the right to file an appeal with the high court. However, a 15% additional court fee will be charged on the original court fee for filing an appeal if the party is dissatisfied, regardless of the level at which the appeal is filed.
What is the procedure for taking action under the Banking Offense and Punishment Act (BOPA) for a cheque bounce?
Once a cheque is bounced, as discussed in question 2, if the payee wishes to proceed under BOPA, the following steps are taken:
The payee can file a FIR with the police after the cheque has been bounced three times.
The police will start an investigation and prepare an investigation report.
The report is then submitted to the District Attorney.
If the evidence is sufficient and there are reasonable grounds, the District Attorney will file a charge sheet in court, initiating formal legal proceedings against the drawer under BOPA.
What is the time limit for filing a cheque bounce case under the Negotiable Instruments Act and Banking Offense and Punishment Act?
Under the NIA, a cheque bounce case must be filed within five years from the date the cause of action arises, typically from the date the cheque is dishonored while BOPA provides that, the affected party must file a FIR within one year from the date of the cause of action to initiate criminal proceedings against the drawer.
What are the documents required for filing case bounce case?
In Nepal, to file a cheque bounce case, you need the original cheque, cheque bounce statement from the bank (also known as ‘cheque clearing report’), the bank deposit slip showing the cheque was dishonored, a copy of citizenship certificate, and the plaint, or if the case goes through BOPA the charge sheet prepared by the district attorney.
How can you defend before the cheque bounce case?
There are two approaches to defending a cheque bounce case in Nepal. In the first scenario, when the payee receives an insufficient funds notice from the bank, the drawer can take immediate action by depositing the required amount into their account. By promptly addressing the issue, the drawer can avoid the legal complications associated with a cheque bounce case. This proactive step resolves the matter before it escalates into litigation, ensuring that both parties can settle the dispute without court involvement.
In the second approach, if the drawer fails to deposit the amount after being notified and the payee decides to initiate legal proceedings under the provisions of the NIA, the drawer has several defense strategies available. The drawer can challenge the evidence presented by the complainant, argue that sufficient funds were available or that the cheque was mistakenly dishonored, or claim that clerical errors or a lack of fraudulent intent led to the cheque bounce. Additionally, the drawer can file a counterclaim (प्रतिउत्तरपत्र) to defend against the case. Both parties may also opt for court-ordered mediation, where they can negotiate and settle the dispute outside of court, offering a more amicable resolution.
What kind of imprisonment can be imposed for cheque bounce under the laws of Nepal?
In cases of cheque bounce, both NIA and BOPA outlines distinct penalties to ensure accountability. Under the NIA the penalties include the recovery of the cheque amount along with interest, imprisonment for up to three months, a fine of up to Rs. 3,000, or a combination of both imprisonment and a fine. On the other hand, BOPA provides stricter consequences, including a fine equal to the value of the bounced cheque, recovery of the full cheque amount, and imprisonment for a period not exceeding three months.
What is the recent development regarding cheque bounce in Nepal and how will it impact existing cases?
After the Supreme Court of Nepal’s final judgment in the case of Nirmala Sodari v. Government of Nepal (NKP 2079), the court underscored the urgent need for comprehensive laws concerning cheque bouncing, emphasizing the significance of trust and confidence in the banking system. The court noted that a reliable banking framework is essential for fostering public trust and safeguarding the integrity of financial transactions. In response to this judgment, lawmakers have been engaged in extensive discussions to enhance banking regulations and the legal framework governing cheque bounce offenses.
Currently, a bill proposing substantial revisions to the BOPA is under consideration. This proposed legislation seeks to address various banking sector issues, particularly the need for stricter penalties for cheque bounce and other offenses. As part of the Banking Offenses and Punishment (Second Amendment) Bill, 2080, the Finance Committee, in a meeting on September 9, 2024, passed new legislation stipulating that individuals convicted of cheque bouncing may face imprisonment from one month to two years.
Key provisions of the bill state that if an account holder issues a cheque without sufficient funds, the cheque may be returned, leading to a cheque bounce case. Banks are required to notify the account holder, ensuring that adequate funds are available within 30 days. If the account holder fails to deposit the necessary amount within this timeframe, the cheque can be presented again. Should the funds remain insufficient, the bank must return the cheque within three days and officially declare it a cheque bounce. Additionally, the legislation outlines penalties based on the cheque amount. Cheques up to Rs 1.5 million incur one month of imprisonment, those from Rs 1.5 million to Rs 50 million result in one to three months of imprisonment, cheques between Rs 50 million and Rs 100 million lead to three months to one year of imprisonment, and cheques exceeding Rs 100 million can result in two to four years of imprisonment.
The new legislation will impact existing cases of cheque bouncing by strengthening banking provisions and enhancing legal recourse for affected parties. With the introduction of mandatory notifications from banks to account holders regarding insufficient funds, the likelihood of cheque bounce disputes arising from misunderstandings or oversight will diminish to some extent. This proactive measure ensures that account holders are aware of their obligations and have the opportunity to rectify the situation before a cheque is formally declared as bounced. Furthermore, the structured penalties based on the cheque amount provide a clearer legal framework, promoting accountability among individuals who issue cheques without sufficient funds. This provision can deter potential offenders, thereby reducing the incidence of cheque bouncing cases.
The bill is currently under discussion and has recently been passed by the Finance Committee. Upon approval by both houses of parliament, it will come into effect once published in the Nepal Gazette, though this process may take some time.
How to avoid cheque bounce in Nepal?
To avoid cheque bounce in Nepal, the drawer must ensure that the account has sufficient funds and that the cheque is accurately filled out, including the date, amount, and signature. The cheque should be presented within its valid period (six months), and post-dated cheques should be avoided unless the drawer is certain the funds will be available. The drawer’s signature must match the one on file with the bank, and regular monitoring of the account is necessary to avoid issues due to deductions or pending payments. Additionally, the drawer should coordinate with the payee on deposit timing, especially for high-value cheques, and notify the bank immediately if any issues arise.