Indians facing a lot of cheque bounce cases now a days especially in business transactions. When a cheque is issued by the bank and due to insufficient funds or other reason it is dishonoured the question arises whether the directors of the company be held personally liable for the cheque bounce?
The answer to this problem mainly lies in section 138 and section 141 of Negotiable Instruments Act ,1881 (NI Act). These with the liability of companies, their directors and cheque dishonour.
What is Negotiable Instruments Act,1881?
It is an important Indian law that looks after financial instruments which include cheques, promissory notes, and bill of exchange.
The aim of this act is to ensure that credibility and trust in financial transactions.
The most important section under this act is section 138, which makes cheque dishonour a criminal offence.
What is a Cheque Bounce?
A cheque bounce happens when a bank disagrees to honour a cheque issued by a company or person. This may happen due to:
Insufficient bank funds
Closed account
Drawer stops the payment
Exceeding agreement with the bank
Section 138 of NI Act, cheque bounce is considered a criminal offence if certain conditions not fulfilled