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Businessman Sentenced to One-Year Jail for Bounced Cheques

by TaxConcept
April 28, 2024

Businessman Sentenced to One-Year Jail for Bounced Cheques

1 Legal Ramifications of Bounced Cheques in India
2 Related
Legal Ramifications of Bounced Cheques in India
A businessman in Gandhinagar has been sentenced to one year in prison after cheques he issued to the income tax department bounced, leading the department to take legal action against him.

Mehulkumar Barot, a resident of Chandkheda, who operates a company called Merge India Business Solution under his wife’s name, was ordered to pay Rs 2.34 crore by the income tax department as part of his 2013-14 assessment. Despite a regular demand of Rs 1.04 crore, he issued cheques totaling Rs 20 lakh in 2019.

However, two Rs 5 lakh cheques were not honored due to insufficient funds in Barot’s bank account. Subsequently, the income tax department’s tax recovery officer filed a case against him under Section 138 of the Negotiable Instruments Act when Barot refused to comply.

During the proceedings, Barot argued that the officer did not have the authority to institute prosecution at such a belated stage and claimed that he had been coerced into writing the cheques. He also contested the demand, stating that an individual’s tax liability could never be so high, and suggested that the department should have addressed the issue with his wife since it concerned income from their business.

Despite Barot’s defense, the court sided with the income tax department and found him guilty of issuing dishonored cheques, subsequently sentencing him to one year in jail. Additionally, Barot was ordered to pay compensation equal to the value of the cheques to the department, with a three-month jail term in case of default.

Bank Cheque Bounce Rules in india

In India, the rules regarding bounced cheques are governed by the Negotiable Instruments Act, 1881. According to Section 138 of this act, if a cheque issued by a person for the discharge of any debt or other liability is dishonored by the bank upon presentation, the person who issued the cheque can be held criminally liable. The payee must give written notice to the drawer of the cheque within 30 days of receiving information about the dishonour of the cheque, and the drawer then has 15 days from the receipt of the notice to make the payment. If the payment is not made within this period, the payee has the right to file a criminal complaint. Upon conviction, the drawer of the bounced cheque can be punished with imprisonment for a term which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or with both. Additionally, the payee may claim compensation in the form of payment to the holder for the loss or damage proved to have been caused by the dishonour of the cheque.

Bank Cheque Deposit Rules in India

In India, when depositing a bank cheque, it’s important to be aware of the rules and procedures to ensure a smooth transaction. Here are some key rules to keep in mind:

Endorsement: Ensure that the back of the cheque is properly endorsed with your signature as per the account holder’s name. This is essential to ensure that the funds are credited to the correct account.
Account Crediting: After depositing the cheque, the bank may require time to process and clear the funds. It’s important to allow for this processing period, as the funds will typically be credited to your account after the clearance is complete.
Cheque Bounce: In the unfortunate event of a cheque bounce, it’s crucial to adhere to the legal procedures outlined in the Negotiable Instruments Act, 1881. As per Section 138 of this act, if a cheque is dishonored, the payee must give written notice to the drawer within 30 days of receiving information about the dishonour. The drawer then has 15 days to make the payment, failing which the payee has the right to file a criminal complaint.
By understanding and following these rules, individuals can navigate the bank cheque deposit process in India effectively and ensure the smooth processing of funds.

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