An all time saying  CUT THE CLOTH TO SUIT THE PURSE should now be remembered.    Either you may buy a house or do business through borrowings, or even go for a Credit Card or use  Electronic Clearance System (ECS) for the services.  But beware of the consequences of any  failure to honour the payment commitments.  Bouncing of a cheque or the ECS mandate is a criminal offence.  Do you want to know more about this???

  • Section 138 of the Negotiable Instrument Act deals with the bouncing of cheques.
  • Section 25 of the Payment and Settlement Systems Act, 2007 provides the same rights and remedies to the payee (beneficiary) against the dishonour of electronic funds transfer instruction as are available to the payee under the Negotiable Instruments Act.

The repercussions are:

1. Whether one issues cheques or signs up for the ECS mandate, the obligations are similar.

  • If the funds transfer transaction initiated by a person from his account is not be executed for the reason INSUFFICIENT FUNDS to honour the transfer instruction or
  • If the cheque amount exceeds the amount arranged to be paid from that account by an agreement made with a bank
  • Such person shall be deemed to have committed an offence.
  • Therefore, the person shall without prejudice to any other provisions of this Act be punished with imprisonment for a term which may be extend to two years, or with fine which may extend to twice the amount of the cheque/ electronic funds transfer, or with both.

2. If for any reason, the individuals/ entities who have

  • Either issued cheques (current dated or post dated) or
  • Has given the ECS mandate and
  • Expects that the instrument will get dishonoured

They should approach the lender/ service or goods provider in time and seek further time or resolution. Closing one’s eyes thinking that it will take years before any legal action will be taken are totally fallacious.

3. Also it is essential that in case you are a partner or director of the entity, be sure that

  • Sufficient funds are kept in the account before the cheques are issued or
  • The ECS mandate is duly provided to honour the cheques when presented.

4. The obligations under law will transverse both on the entity and the person who has signed the cheque.

5. The payee (beneficiary) will also attempt to cover other partners / directors who though have not signed the instrument but in their opinion are equally liable.

6. In effect, it is essential that proper legal advice is sought if there are going to be dishonouring of obligations.

7. In similar lines, for payee/ beneficiary (lender or provider of service/goods), timely action is necessary, since a possible lapse in commencing proceedings in time or

  • filing of the proceedings under wrong jurisdiction or
  • commencing proceedings against the person against whom the action should not have been taken

can make the recovery proceedings lengthy and thus would provide an opportunity to the borrower to take legal shelter.


  • It is essential that both the parties are fully aware of the legal obligations contained in the law.
  • Failure of one party in honouring its obligation can result in a chain reaction since the receiving party in turn can also face a similar situation for want of adequate funds.

No Comments

Give a comment