12 Reasons Why Checks Bounced
12 Reasons Why Checks Bounced: Have you come across a situation where your check has not been accepted? If yes! So today I am going to discuss the reasons for rejection of cheque.
Meaning of rejected check:
A check is said to be honorable when the bank gives the amount to the payee. Whereas, if the bank refuses to pay the amount to the payee, the check is deemed to be rejected. In other words, a check dishonored is a situation in which the bank refuses to pay the check amount to the payee.
Whenever a check is dishonored, the drawee bank immediately issues a ‘Check Return Memo’ specifying the reasons for the dishonor of the check to the payee banker. The payee banker provides the memo and the rejected check to the payee. The payee has the option of re-crediting the check within three months of the date specified on the cheque, after meeting the reason for the dishonor of the cheque.
Further, the payee has to give a notice to the drawer within 30 days from the date of receipt of “Check Return Memo” from the Bank. The notice should state that the check amount will be paid by the payee within 15 days from the date of receipt of the notice by the drawer.
However, if the drawer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to take legal action against the defaulter as per section 138 of the Negotiable Instruments Act.
Reason for rejection of check:
- If the check is overwritten. Know ‘How to write a cheque?
- If the signature is absent or the signature in the cheque does not match with the specimen signature maintained by the bank.
- If the name of the payee is absent or not mentioned clearly.
If the amount written in words and figures do not match with each other.
- If the account number is not clearly mentioned or is completely absent.
- If the drawer orders the bank to stop payment of the cheque.
- If a court of law has ordered the bank to stop payment on the cheque.
- If the drawer has closed the account before the cheque is presented.
- If there is insufficient amount in the bank account to meet the payment of the cheque.
- If the bank receives a notice of the death or insanity or insolvency of the drawer.
- If any change made on the check is not proved by the drawer giving his signature.
- If the date is not mentioned or written incorrectly or the date mentioned is three months earlier.
- To get a more clear understanding of the major reasons why a check is dishonored, you can watch the video below:
What happens when a check is rejected?
When the check is rejected, a ‘Check Return Memo’ is presented by the bank to the payee as to why the check has bounced. The payee can resubmit the check if he believes that it will be accepted a second time. If the check bounces again, the payee can legally prosecute the drawer.
The Negotiable Instruments Act, 1881 is applicable to cases relating to the rejection of cheques. As per section 138 of this Act, dishonor of check is a criminal charge and punishable with monetary penalty or imprisonment of either description for a term which may extend to two years, or with both.
If a check bounces, a penalty is levied on both the drawee and the payee by their respective banks. If there is a rejected check against the repayment of the loan, the person will have to pay an additional payment fee.
Damage to Credit History
Your credit history is negatively affected if your check is rejected as your payment activities are reported by financial institutions to credit bureaus. Lenders will trust you if you have a good credit score. To have a good credit score, it is a good practice to avoid bounced checks. Your good repayment activities will help you build a good CIBIL score and will benefit you at the time of borrowing money from financial institutions.
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While writing the check keep the above points in mind so that the check is not rejected.
Keep learning!! Keep the above points in mind while writing the cheque so that the check is not bounced.