What are dishonoured cheques? Why are cheques dishonored? What are the consequences of a dishonored cheque? We will be answering all the questions in this article related to a cheque and its dishonor. Cheques are considered the best and safest way of money transfer in India. Whether it is to pay rent, repay a loan amount, or make salary payments, cheques are the prioritized way. Cheques bring a number of benefits along with such as they cannot be stolen.
To withdraw money using cheques, you need to visit the nearest bank branch and submit the paper there. After some basic procedures, you can withdraw your money from the bank, complete a bank-to-bank money transfer, and so on with the help of cheques. But what if the bank denies paying for the cheque submitted? That’s where the term Dishonoured Cheques comes into the game. Go through the complete article to understand all the facets related to the topic.
Table of Contents
What is a dishonored cheque? (Cheque dishonoured meaning)
A dishonored cheque is a cheque that a bank on which it is drawn refuses to pay (also termed as honor). In other words, if you submit a cheque to your bank and it refuses to pay you the amount mentioned in the cheque, it becomes a dishonored cheque. Whenever a bank does dishonor of cheque, it immediately issues a Cheque return memo to the payee banker clarifying the reasons for dishonor of the cheque. The banker then returns the cheque to the payee along with the memo. Cases of dishonor of cheques have quite increased in the country recently.
The payee has the right to resubmit the cheque to the bank within 3 months to get the funds withdrawn. Also, the payee needs to give notice to the drawer within 30 days of receiving the Cheque Return Memo. The notice should inform that the cheque amount will be paid to the payee within 15 days from the date of receipt of the notice by the drawer.
In case the drawer fails to make the complete payment of the cheque within 30 days from receiving the notice, the payee has the right to conduct legal action against the defaulter.
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Why is a cheque dishonored?
Although there are many reasons for dishonoured cheques, the most common reason is NSF. NSF stands for non-sufficient funds that indicate the insufficient cleared funds in the account on which the payee was trying to draw the cheque. An NSF cheque is also referred to as a bad cheque, cold cheque, rubber cheque, bounced cheque, or dishonoured cheque.
Please note that dishonoured cheque meaning (cheque dishonour meaning) and cheque bounce meaning are almost same. The difference comes from their reasons. The reasons for dishonoured cheques can be several that have been mentioned below, but the reasons for cheque bounce (cheque bounce reasons) is only NSF in the account of the holder.
Reasons for dishonoured cheques
1. The signature of the account holder missing on the cheque or found to be not matching with the signature stored in the bank records.
2. The name of the payee is absent on the cheque or is not written properly.
3. In case the amount written in numbers and words does not match each other.
4. If the filled account number is incorrect or is absent, the cheque will be considered dishonored.
5. If the account holder has prevented the bank from making cheque payments, the cheque will not be drawn and will be considered a cheque. It is also known as a stoppage cheque.
6. The funds of the account holder have been frozen.
7. The cheque submitted is damaged or torn.
8. If the date mentioned on the cheque is outside the period permitted by law.
So, these are the major reasons for dishonored cheques. There might be some other reasons as well as the law keeps changing.
Consequences of a dishonored cheque
In case a cheque is dishonored, a Cheque Return Memo is issued immediately by the bank to the payee. The memo states the reasons why the cheque bounced or was dishonored. If the payee believes the cheque to be honored the next time, he can resubmit it. If the cheque is bounced again, the payee holds the right to prosecute the drawer legally.
Below are some of the consequences of a dishonored cheque:
Penalty for cheque bounce (Charges for cheque bounce)
In such cases, cheque bounce charges are levied on both the drawer and the payee by their respective banks. The person also needs to pay an additional amount for late payment charges if the dishonored cheque falls against repayment of a loan.
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Damage to credit history
If your cheque is bounced, it affects your credit history negatively. Financial institutions report your payment activities to the credit bureaus. To maintain a good credit score, you should avoid bounce of cheque. A good and healthy credit score helps you lend money from financial institutions in case of an emergency.
Frequently Asked Questions
1. What is the difference between cheque bounce and dishonour?
Ans: The literal meaning of both the terms is quite the same in a certain context. The difference can be observed when it comes to their reasons. A cheque can be dishonored for several reasons, for example, due to an incorrect date mentioned on the cheque, due to an invalid or incurred account number mentioned on the cheque, or many more. On the other hand, a cheque is bounced only due to one reason, NSF, non-sufficient funds in the account of the holder.
2. What to do if cheque is dishonored?
Ans: If your cheque is dishonored, you can resubmit it after 3 months to get the funds drawn from the account. If the cheque is bounced again, you can prosecute the drawer legally.
3. What is cheque dishonor?
Ans: In the simplest words, a cheque on which the bank refuses to make the payment or withdraw money is called a check dishonor.
4. What are the cheque bounce charges?
Ans: If a cheque is bounced, a penalty charge is levied on both the drawer and the payee by their respective banks. Different banks have different cheque bounce penalty charges ranging from Rs.50 to Rs.750.
5. What is cheque dishonour?
A cheque is said to be dishonoured if the bank refuses to pay the amount to the payee. In simple words, dishonour of cheque is a condition in which the bank refuses to pay the amount of the cheque to the payee.
Final Thoughts
Cheque dishonor is a legal offense and is punishable with monetary charges or imprisonment, or both. The cases of bounce of cheque in India have been increasing in the past few years. If your cheque is also bounced or dishonored, you should know the major reason behind it and then take any action regarding it. Before submitting your cheque to the bank, make sure to check if everything is filled in properly to maintain a good and healthy credit score.
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