Cheque Bounce and Bank Recovery Strategy: How to Coordinate Litigation
Litigation regarding cheque bounce issued against bank loan account puts two very different legal pressures in one horse carriage. Understandably, the two constituents can be a Section 138 cheque – bounce complaint in one forum and loan recovery, recall proceedings, SARFAESI suit, civil recovery lawsuit or Debt Recovery Tribunal (“DRT”) proceedings in another forum.
All these proceedings can happen concurrently but shouldn’t be mixed as same proceeding. Strategy for cheque bounce vs bank loan recovery needs aligned documents, cautious settlement correspondence and knowledge of statutory limitation dates. The repayment made under compromise in one forum won’t necessarily deemed discharged in the other proceeding.
As borrower yourself Advocate BK Singh witnesses clients and corporates every day taking this costly mistake – respond too quickly or compromising without understanding how that statement would affect the cheque-bounce lawsuit, the outstanding loan account statement, guarantor liabilities and/or pending recovery by the bank. An inconsistent statement/letter would be thrown back at you later.
Cheque bounce strategy completely depends on loan documents, purpose of cheque, account statement, dishonor memo, served notices, security offered for loan and stage of loan recovery. Proper coordination of these two suits can save you from unnecessary legal hassles and protect your commercial interests.
Why This Article Is Important In India in 20 26
If you are salaried borrower or have dealt cheque related disputes for bank loan recovery in Delhi NCR, Mumbai, Bangalore, Hyderabad, Pune, Chennai, Kolkata, Ahmedabad and other parts of India, this article is for you.
Life becomes hell when suddenly your lender asks you to repay entire loan amount by bouncing off a cheque you earlier provided as “security” upon default.
While loan recovery suit is civil in nature the Section 138 attracts criminal repercussions if conditions are met. “Procedings relating to loan recovery focuses on parties involved, debt contract, security interest created thereon and the over-dues account. Neither the parties nor the courts can prejudge that one proceeding will over dispose- off the other”, explains Advocate BK Singh.
A borrower has every right to dispute the amount as shown by bank in loan recovery lawsuit while receiving cheque-bounce notice from bank. Settling of dues or lender enforcing his security by taking over assets doesn’t extinguish criminal complaint that has to be withdrawn by lender by filing application with proper mention.
Quick Facts
♦ Section 138 will get attracted when cheque is issued against a legally enforceable debt or liability.
♦ Notice for cheque bounce should be sent within a period of 30 days from receiving information about dishonor.
♦ Drawer has 15 days upon receiving the notice to pay the amount asked by drawer.
♦ Section 138 Cheque complaint should be filed within one month of cause of action arising.
♦ Loan Recovery and cheque bounce suits can run parallelly.
♦ While sending settlement, it should be clearly mentioned what happens to cheque-complaint & loan account.
♦ When cheque was issued as “security” for loan and gets dishonoured can attract Section 138, if facts are favorable
What’s the difference between Cheque Bounce Lawsuit and Bank Loan Recovery Lawsuit?
Cheque-bounce lawsuit is a statutory criminal complaint filed by complainant under Section 138 of NI Act, 18 81. Bank loan-recovery can be contractual lawsuit filed by bank based on loan documents, account default, securities provided, guarantee and any law available for recovery.
The cheque matter questions – Whether ingredients of dishonor as provided under statute is satisfied. Bank loan-recovery enquires – What sum is legally due, can lender enforce security, what procedure bank can take for recovery.
Client should be advised by Advocate BK Singh not to file a reply drafted for bank loan suit without comprehending the impact of such statement on the cheque-bounce complaint. Borrower can have an arguable claim relating to non-calculation of interest, misuse of cheque when lent to you by lender or wrong filling of blank cheque by lender. On other hand lender may still stand on his position that cheque was issued against loan agreement and funds were utilized as per account records. Attention needs to be taken while responding to both sets of lawsuit on its own merits supported by necessary documents.
Legal provisions for Coordinating Loan and Cheque suits.
Section 138 is an offence pertaining to dishonor of cheque for insufficiency of funds when cheque is drawn for payment of any amount of an existing legal debt or liability. Many conditions precedent needs to be satisfied. Sections 139 and 118 have legal presumptions which can be triggered after establishing fact of execution of the document. Section 142 talks about complaint and jurisdiction. Section 147 talks about compoundable nature of offence.
Loan can be recovered through different forums. Secured creditor can start SARFAESI proceedings, if he fulfills all statutory requirements. Bank/Financial institution can start Debt Recovery Tribunal (“DRT”) proceedings, if satisfies conditions and DRT has territorial jurisdiction. Civil recovery, arbitration, enforcement of guarantee, workout etc. are few possibilities depending upon loan documents.
Advocate BK Singh has simply stated that – Admission made in reply sent to your lawyer or even in email sent for settlement would be utilized against you both in suits. One cannot deny having issued cheque against loan in one proceeding and ask for time to repay the said amount in another proceeding.
Who Needs Advice On Coordinating Bank Loan And Cheque Bounce Proceedings?
Following people will find this article useful.
♦ Anyone who has been served cheque-bounce notice after lender has recalled your loan.
♦ Anyone who have executed post dated or securities cheques.
♦ Company Directors/Authorized Signatories issuing cheque on behalf of company.
♦ Guarantors whose cheques were taken as “security” against loan.
♦ Banks/ Lenders who want to recover their money without losing limitation for Section 138.
♦ Family member who received personal loan cheques from relative and now being threatened for recovery.
Advocate BK Singh come across several cases where cheque is bounced many years ago & is presented much later after defaulting from the loan repayment schedule or not wanting to honour agreedupon settlement. Description written on the face of cheque won’t decide your lawsuit. Lookout for the liability outstanding on the date of cheque presentation, equally matters.
How can parties coordinate their lawsuits?
♦ Firstly index all pending documents and proceedings. That would include bounced cheque, return memo, legal notice sent by lawyer, loan agreement, account statement, recall notice issued, SARFAESI notice, recovery application, any settlement correspondence and court orders received.
♦ Reply to legal proceedings should consistently aver the facts. Lawyer generally scans if the cheque was issued for whole of loan repayment or towards loan repayment, as collateral, under duress, for disputed amount or towards liability that had already been settled.
♦ Avoid copying any sentence only because your lawyer has mentioned it. Each facts needs to be evaluated separately and aligned response should be sent.
♦ Care should also be taken while making any payments. If borrower decides to settle some amount, receipt and conversation should clearly mention what account it was paid towards, purpose of such payment, how much was adjusted, what is balance and if such repayment is being made as settlement of Section 138 complaint. If parties have reached to a compromise, mention terms on withdrawal/compounding/shut down or continuation of each related proceedings.
Documents Which Usually Decide Your Matter
♦ Original cheque / certified cheque copy.
♦ Bank’s return memo showing dishonor reason.
♦ Statutory demand notice & its delivery receipt.
♦ Loan Agreement / Sanction letter along with the schedule of repayment.
♦ Account statement and interest computation.
♦ Undertaking on security-cheque / Cheque handover letter.
♦ Settlement offer received, OTS mail and payment receipts.
♦ SARFAESI notices issued, DRT documents if initiated or arbitration notice or civil suit pleadings
♦ Board resolution or Partnership deed and minute sheet if it is company/partnership related dispute.
Advocate BK Singh advises Take Print Outs Of All Documents. Sending selected screenshots and partial account statements lead to more queries rather than help you.
When should you hire a lawyer?
You can hire a lawyer anytime after your cheque got dishonoured or notice was received or lender has recalled your loan account or has proposed settlement to you. Important to consult a lawyer immediately if you have received summons / warrant / SARFAESI notice /DRT proceedings related notices or you have received any police harassment/intimidation related notices.
Advocate BK Singh will let you know upon documents review whether the cheque- bounce lawsuit is maintainable, notice sending period is saved, how you should’ve been credited on making repayment to your account and whether the loan recovery demand is as per your loan pass book.
How Advocate BK Singh Can Help You?
We at Cheque Bounce Lawyer help lenders, borrowers, guarantors, businesses and authorised signatories with their Section 138 complaints, sending of notice replies, settlement documents, preparation of defense and related bank-recovery issues. Advocate BK Singh focuses on ensuring that there is one legally coherent story recorded in every forum which deals with the matter.
We try to do this with a practical coordination than promising results. Sometimes you should fight the matter, settle the matter, compound the offence or defend the matter on documentary evidence only depending on the facts and circumstances.
FAQs
Ans. Yes. Since cheque bounce lawsuit filed under Section 138 and loan-recovery proceeding are not dependent of each other. Facts and admissions/payment can and should be pleaded consistently in both proceedings. You can have your documents reviewed by Advocate BK Singh.
Ans. Section 138 doesn’t get closed because you two have signed a private settlement letter. Only when the compromise specifically deals with terms of compounding, withdrawal, consent terms etc. or other legal procedure for closing a pending criminal lawsuit.
Ans. Cheque provided as “security” can become subject of Section 138 if there was a legally enforceable liability on the date of cheque presentation. Facts would speak whether the cheque was provided as only security or it was presented against outstanding liability.
Ans. If repayment is made within statutory period of 15 days from receiving the notice, cause of action under Section 138 against that particular cheque would be extinguished. Even if you decide to pay after receiving the notice needs thorough examination of where the bank has filled the complaint and what terms were agreed upon during settlement.
Ans. Enforcement action under SARFAESI and Section 138 proceedings are independent of each other. Payment and compromise has to be mentioned and accounted for both proceedings.
Ans. Guarantor can be subjected to Section 138 proceeding if guarantor himself issued cheque against legally enforceable liability. Terms of guarantee, purpose for which cheque was issued and underlying transaction would be evaluated by Advocate BK Singh before he advises you the clients.
Ans. Court with jurisdiction under Section 142 of Negotiable Instruments Act depends on where cheque was presented for payment. Bank branch where cheque was presented for payment is one of the factor. Care should be taken to refer to bank’s records and choose the court accordingly.
Ans. Section 141 doesn’t automatically attribute personal liability on directors. Persons who were actually in charge and responsible for the companies conduct of business at the time of offence committed shall be liable. This is subject to necessary pleadings made by lender, your role in the company and facts.
Ans. Loan account statement/passbook, evidence of repayment/ settlement, settlement documents, agreement for supplying security cheque, correspondence from bank, whatsapp message/chat etc., copies of documents which support as what was your liability actually.
Ans. Yes. Offences are compoundable under Section 147. Compound through proper procedure in the court where complaint is filed. Mention the cheque complaint and recovery suit if any in the written settlement.
Conclusion
Stick to One Set of Facts. Let your cheque bounce and bank recovery case be built on a single set of facts. The facts you state in your cheque case, in your loan account, in your recovery demand letter, in your settlement agreement and YES even in your court papers should never contradict each other.
Get Advocate BK Singh to go through your documents, limitation periods and associated litigation before a simple non-payment results in a myriad of unnecessary lawsuits.
