In the present case, Negotiable instrument Act will be applicable. The matter of insufficiency of funds is dealt under Section 138 of the Act. It is punishable with a fine which can extend to twice the amount of the cheque or imprisonment for a term not more than two years or both.
When the payee presents a cheque to the bank for payment, and the cheque is returned unpaid by the bank with a memo of insufficient funds, the cheque is said to have bounced. The same has happened in the present case as well.
If there is not enough balance in the drawer’s account to make the payment of the cheque, the bank will reject and return the cheque to the payee with a memo stating insufficient funds to pay the cheque amount.
The Reserve bank of India has also issued some guidelines in 2021 which are as follows –
Customers whose financial activities revolve heavily around cheques or those who even plan to use cheques will have to ensure a minimum bank balance.
If this minimum balance is not maintained, the cheque will bounce. In addition to this, the customer who issued the cheque may also have to pay a penalty fee.
However, a cheque bounce notice cannot be issued if the cheque was issued as a donation, gift or any other obligation that is not legally enforceable.
In such cases parties should try to amicably settle the dispute outside the Court thereby saving time and cost.