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Dishonoured Cheque: Meaning, Reasons, Charges, How to Avoid Them

Summary: A cheque falls under the dishonoured category when a payee cannot successfully deposit the payer’s cheque. Find out why cheques get dishonoured and what are the consequences may be.

26 Apr 2022 by Team FinFIRST
Dishonoured cheques
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Dishonoured or bounced cheques can lead to penalties and attract legal action


Despite the emergence of digital payments, cheques are still used widely in India. They provide proof of payment and help with every type of transaction, including loan and bill repayment. It is difficult to commit fraud using cheques while lenders process them within days, which speeds up the process.

However, cheques also come with certain drawbacks. The biggest issue you can face is dishonoured cheques, resulting from different problems. 

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A dishonoured cheque – what is it?


A cheque falls under the dishonoured category when a payee cannot successfully deposit the payer’s cheque. A payer is the one who issues a cheque to the payee. The payee deposits this cheque in the bank. If the bank refuses to pay the amount mentioned on the cheque, the cheque is dishonoured.

The payee must inform the payer of the dishonoured cheque and ask them to inquire about its reason. If the payer believes the cheque will be honoured a second time, they can resubmit it within three months after the date on it. However, if the cheque bounces again, the payer can face legal action.

The payee could file a case if the amount specified in the payer’s cheque was for the discharge of a debt. No legal action can be taken if the cheque was given as a gift or for lending money.



Why do cheques get dishonoured?


Cheques can be dishonoured for a no. of reasons. Some of them are as below

1. Insufficient funds


Lack of cash in the account is one of the most common reasons for dishonoured cheques. The bank cannot execute the transaction if you do not have the required funds in your account. The bank may impose a cheque bounce penalty on the payer and the payee. The payer has two options when this occurs: write a replacement cheque or add enough money to the account.

2. Mismatched signature


Cheques are among the few payment methods that still rely on signatures. Signatures are, in fact, a key component of cheques. If the payer’s signature does not match the recorded signature with the bank, the bank will reject the cheque.

3. The date on the cheque


Date is an essential feature in cheques. Any discrepancy or fault with it can result in dishonoured or disapproved cheques. The most common problem with dates on cheques is that they can be distorted or outdated. Ensure that you check it thoroughly before depositing or offering a cheque.

4. Damaged cheque


The bank will not accept any cheque in damaged, ripped, or poor condition. Banks also reject cheques if the details are unclear or there are too many stains on them. Hence, keep the cheque in readable condition before processing it forward.

5. Overwriting


Overwriting anything on cheques can lead to rejection. Banks reject them because it appears suspicious.

While Metra Trust closely analyses the cheques it receives, the bank does not scrutinise mistakes. Writing errors are common, so you will not be charged for an honest mistake. However, penalties will apply if the same mistakes are repeated countless times. Also it is best to keep track of all your banking information with a mobile banking app

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.metratrust.com for latest updates.

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