A cheque can bounce for a number of factors. Most people aren’t aware of all the reasons that could result in a bounced cheque. In this post we will discuss about the factors that can lead to bounced cheque so that you can be aware. Not all cheque bounces are intentional. Sometimes it’s due to ignorance or not using your sixth sense when called for.
Here are 6 reasons as to why a cheque could bounce.
Cheques are popular and used by most people who have a bank account. Jan Dhan Yojana has led to positive outcomes one of which is more number of people with bank accounts.
As do the number of bank accounts go up so does the usage of cheques and so do cheque bounces.
But first let us see what’s a bounced cheque.
It’s a cheque that the bank refuses to honor and doesn’t get passed. The event is intimated to the issuer and a penalty is charged. If the cheque bounced for significant amounts that it can lead to criminal proceedings and won’t end with simple penalty.
Here are the reasons why this could happen.
1. Insufficient Funds in the account:
This is often the primary reason. If sufficient funds are not available from the account through which the cheque was issued it can cause the cheque to bounce.
If a cheque is issued from such an account the bank is unable to discover adequate funds. This non-availability of requisite balance can cause the bank authorities to not honor the cheque. The transaction cannot be completed and they will proceed to stop the payment.
This is followed by levying a penalty on both parties involved, both the receiver and the issuer. Next, the issuer can issue another cheque this time ensuring that the account has sufficient funds to cover the transaction. The receiver can also take it up to the court and initiate legal proceedings against the defaulter. It’s a serious matter that has serious consequences.
Be careful when issuing cheques and don’t consider it a matter of play.
Problems dating the cheque
The date associated with the cheque is another important piece of information that cannot be taken lightly.
A problem there can result in the bank not honoring the cheque. Common problems that can arise are when the date is disfigured or otherwise illegible. When the date isn’t clear banks have no option but to dishonor the cheque. The Supreme Court passed a verdict that cheques cannot be cashed after a period of 3 months and so banks follow the criteria strictly.
Another problem is that the date could have passed. The date having expired, the cheque is no longer valid. A cheque as mentioned before is valid only for 3 months from the date when it was issued. Say it’s issued on 1st of January, it will be valid only until end of March.
The third problem that could arise with cheques is they are for the future or are post dated. Post dated cheques are issued for a future date. For instance I could write a cheque in March for the month of May. If the date is 15.05.2018 then the cheque should only be deposited on or after that date not before. Doing so will cause the bank to dishonour the cheque. Hence issue post-dated cheques only when due.
In this age of digital banking and mobile transactions cheques are the few financial instruments relying on signatures.
However, that’s not to be taken lightly. If the customer’s signature doesn’t match with what’s on file the cheque won’t pass. Signature is a seminal component of cheques. Sometimes people sign with some signature when opening an account 5 or 6 years ago and totally forget about it when signing cheques. Also as important as the right signature is so is the place where you sign. Signing on MICR band can result in bounced cheque.
Be careful with regards to that.
Incorrect amount as expressed by the difference in words and numbers:
This isn’t always considered strictly but it can happen. If there’s a difference in the amount payable between what you have written in words and in numbers banks will bounce your cheque.
Also incorrect writing will lead you to trouble. The amount in the words section should be in alphabets and no number should be entered in that section. If there’s big discrepancy banks have no option but to bounce the cheque. If the numbers section says 10000 and the words section has 1 lakh they will dishonor the check. Damaged Cheque:
A damaged or torn cheque whose condition isn’t good and whose details are not legible will be dishonored.
Scribbling, Overwriting on Cheque:
Cheques like notes are not to be written over. Scribbling even overwriting or correction is not allowed and doing so will result in a dishonored cheque.
If mistakes happen issue a new cheque. Overwritten cheques appear scrupulous and won’t be honored.
Outline above are the reasons why a cheque could bounce in India. As you can see, insufficient balance is just one of several reasons behind it and there are 5 more reasons on why a bank could choose to not pass the cheque. A cheque is a monetary guarantee and it has to be delivered and transacted with utmost scrutiny and care.