Issuing a bounced cheque, also known as a dishonored cheque, can lead to various financial and legal consequences. These include fines, penalties, imprisonment, and potential damage to one's creditworthiness. Under Section 138 of the Negotiable Instruments Act, 1881, it is a criminal offense to issue a cheque without sufficient funds in the account.
Consequences:
Fines and Penalties: A court may impose a fine of up to twice the cheque amount.
Imprisonment: The issuer may face imprisonment for up to two years.
Criminal Offense: A bounced cheque is a criminal offense, and the payee can initiate criminal proceedings.
Civil Suit: The payee can also file a civil suit to recover the due amount.
Impact on Credit Score: While not always explicitly reflected on a credit report, bounced cheques can negatively impact a person's creditworthiness and make it difficult to obtain loans or other financial products in the future.
Bank Fees and Penalties: The bank may charge fees for handling a bounced cheque.
Loss of Reputation: Repeated instances of bounced cheques can damage one's reputation and credibility.
To avoid these consequences:
Ensure Sufficient Funds:
Before issuing a cheque, verify that there are adequate funds in the account.
Maintain Accurate Records:
Keep track of your account balance and outstanding cheques.
Communicate with the Payee:
If you anticipate a potential issue with a cheque, communicate with the payee and try to resolve the matter before it reaches the stage of legal action.