Consequences of Cheque Bounce in Case of Loan Default: An Indian Perspective
Cheque bounce is a serious offense in India, and it can have severe consequences for the borrower, especially if it happens in the case of a loan default. In this article, we will discuss the legal and financial implications of a bounced cheque, as well as the steps that borrowers can take to avoid such situations.
Legal Implications
Under the Negotiable Instruments Act, 1881, bouncing of a cheque is a criminal offense. If a borrower issues a cheque to repay a loan installment or any other payment, and the cheque bounces due to insufficient funds or any other reason, the lender can take legal action against the borrower. The lender can file a case under section 138 of the Negotiable Instruments Act, which provides for imprisonment for a term that may extend up to two years or with a fine that may extend to twice the amount of the cheque or both.
Financial Implications
When a borrower issues a cheque that bounces, it not only leads to legal consequences but also has severe financial implications. If the bounced cheque was issued to repay a loan installment, the lender may impose a penalty for non-payment of the installment, in addition to the legal action. The borrower’s credit score will also take a hit, which can affect their ability to borrow in the future.
Steps to Avoid Cheque Bounce
Here are some steps that borrowers can take to avoid cheque bounce:
- Ensure that there are sufficient funds in the bank account before issuing a cheque.
- Do not issue a post-dated cheque unless there is enough balance in the account on the due date.
- Avoid issuing a cheque from a dormant or non-operational bank account.
- Communicate with the lender in case of any financial difficulties and request for a repayment extension or restructuring of the loan.
Conclusion
In conclusion, bouncing of a cheque is a serious offense, and borrowers must ensure that they have sufficient funds in their bank account before issuing a cheque. If a cheque bounces in the case of a loan default, it can have legal and financial consequences, including penalty, imprisonment, and damage to credit score. Therefore, borrowers must take all necessary precautions to avoid cheque bounce and repay their loans on time.