In the world of finance, dealing with dishonored and bounced cheques can be tricky. Both involve unpaid cheques, but they’re not the same. Knowing these differences helps you to make smart financial choices and avoid problems.
Dishonored Cheque
A dishonored cheque occurs when a bank refuses to honor the amount on the cheque, even if the drawer (the person who wrote it) has sufficient funds. This dishonor can arise due to various reasons beyond insufficient funds, including:
Discrepancies: Mismatched signatures, incorrect dates, alterations, or missing details like payee name or amount can lead to dishonour.
Stop Payment Instruction: The drawer might have instructed the bank to stop payment before it’s presented.
Account Closure: If the drawer’s account is closed before presentation, the cheque will be dishonored.
Legal Restrictions: Court orders freezing the account or exceeding withdrawal limits can also result in dishonour.
Dishonour of a cheque is governed by the Negotiable Instruments (NI) Act, 1881, and carries legal weight. The payee (the recipient) can initiate legal proceedings against the drawer to recover the amount and potentially face penalties. This is distinct from bounced cheques, which primarily deal with insufficient funds.
Bounced Cheque
A bounced cheque, on the other hand, specifically refers to a dishonored cheque due to insufficient funds in the drawer’s account. This, the most common dishonour reason, often arises from:
Miscalculations or Overspending: The drawer might have miscalculated their available balance or forgotten upcoming debits.
Unforeseen Expenses: Unexpected bills or emergencies can drain the account, leading to insufficient funds.
Bounced cheques, like their dishonored counterparts, are governed by the NI Act and can have significant consequences. Besides legal action by the payee, the drawer might face:
Penalties: Banks typically charge penalties for bounced cheques, adding to the financial burden.
Damaged Credit Score: Repeated instances of bounced cheques can negatively impact your creditworthiness, making it difficult to secure loans or credit cards in the future.
Reputational damage: Bounced cheques can damage your reputation and business relationships, especially if you’re dealing with vendors or clients.
Cheque bounce is an offensive act under the Negotiable Instruments Act of 1881.If your cheque bounces, you may need to face serious consequences, including penalties, imprisonment, or both.The RBI released a new rule in August 2021 requiring individuals using cheques to maintain a minimum bank balance. Failing to do so will result in a bounced cheque.
6 Differences in Dishonored and Bounced Cheques
While both dishonored cheques and bounced cheques represent unpaid cheques, crucial distinctions exist, impacting legal contexts, terminology, and potential consequences. Understanding these tiny details helps people and companies to handle financial dealings sensibly and reduce danger.
1. Legal Context and Formality Legal Context and Formality: Dishonored cheque versus Bounced cheque
Dishonored Cheque:
This phrase has greater formality and legal weight than “insufficient funds” and covers a wider variety of circumstances. It applies not only to physical cheques but also to failed Electronic Clearing Service (ECS) mandates, governed by the Payment and Settlement System Act, 2007.
Bounced Cheque:
This term is often used interchangeably with “dishonored cheque” in everyday language, but it primarily refers to cheques dishonored due to insufficient funds in the drawer’s account. It primarily falls under the Negotiable Instruments (NI) Act, 1881.
2. Usage in Legal Proceedings Dishonored Cheque Versus Bounced Cheque Consequences
Dishonored Cheque:
Due to its wider scope, “dishonored cheque” is the preferred term in legal proceedings, including complaints filed under the NI Act. This word refers to many different problems, such as mismatched signatures, dates, or amounts, stop payment orders, account closures, and laws. ​
Bounced Cheque:
 While “bounced cheque” might be occasionally used in legal settings, it’s less precise and mainly refers to the most common reason for dishonor – insufficient funds.
3. Connotations and Perception
Dishonored Cheque:
This term can sometimes carry a negative connotation, implying a deliberate act of negligence or even intent to deceive. However, it’s very important to remember that dishonor can also occur due to unintentional errors or unforeseen circumstances.
Bounced Cheque:
​This phrase is frequently used with a somewhat less serious meaning, possibly to refer to an error or brief financial difficulty. But there are legal repercussions in both cases, so wise financial behavior shouldn’t be influenced by perception.
4. Formal Communication vs. Everyday Language
Dishonored Cheque:
In formal settings like bank statements, legal documents, and regulatory communications, “dishonored cheque” is the preferred term due to its accuracy and legal standing.
Bounced Cheque:
Bounced Cheque: While commonly used in casual conversations, “bounced cheque” might not be as precise in formal contexts.
5. Legal Ramifications and Accountability
Distinctions in Dishonored Cheque and Bounced Cheque in the aspect of Legal Ramifications and Accountability are:
Dishonored Cheque:
The consequences of a dishonored cheque can be significant, ranging from penalties and legal action by the payee to potential imprisonment in severe cases, depending on the specific reason for dishonor and relevant regulations.
Bounced Cheque:
Although typically less severe than dishonor for other reasons, bounced cheques can still lead to penalties, damaged credit scores, and reputational damage. To reduce the number of bounced cheques, the Reserve Bank of India (RBI) sets minimum balance restrictions, and non-compliance might have more severe implications.
6.Regulatory and Banking Terminology:
Comparison between Dishonored and Bounced cheques in the aspect of Regulatory and Banking Terminology are:Â
Dishonored Cheque:
This term is the prevalent choice in regulatory and banking circles due to its comprehensiveness and legal precision.
Bounced Cheque:
While occasionally used in informal communication within the banking sector, “bounced cheque” carries less weight in official documentation and regulations.
To Know More about the differences between Dishonored Cheque and Bounced Cheque, contact M&M Law Partners.
For further information on differences between Dishonored Cheque and Bounced Cheque, please contact M&M Law Partners. At M&M Law Partners, we have the Best Civil Lawyers in Delhi who are experts in providing expert guidance and legal assistance to address any concerns or issues related to Dishonored and Bounced cheque.Â
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FAQs :
1. Why Is a Dishonored Cheque Called a Bounced Cheque?
‘Dishonored Cheque’ is a more formal phrase that highlights a wider legal position, while ‘Bounced Cheque’ is more colloquial and focuses on insufficient cash, even if the names are sometimes used interchangeably.
2. Do Banks Return Dishonored Cheques?
Yes, banks return dishonored cheques for a variety of reasons, including different signatures or insufficient funds in the account.
3. How Many Times Do Banks Dishonor a Cheque?
The frequency with which a cheque is dishonored is determined by the bank’s regulations and the account holder’s history with the bank.
4. Does Cheque Clear on Sunday?
Generally, cheques do not clear on Sundays, as banks often have non-working days on weekends.
5. What Is the Maximum Amount for a Cheque?
The maximum amount for a cheque varies by country and bank, and certain restrictions and policies apply.
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