Cheque Bounce in Nepal : Applicable Legal Remedy

This article provides a comprehensive overview of cheque bounce in Nepal, including the cheque bounce law in Nepal, applicable legal remedies, procedures, penalties, and the rights of parties involved in a dishonored cheque.

Cheque-related crimes have increased in Nepal due to the increase in the number of cheque transactions.

Dishonour of a cheque occurs when a bank refuses to accept or pay the amount drawn on the cheque due to reasons such as (i) insufficient funds in the bank account, (ii) a mismatch of signatures, (iii) overwriting on the cheque, (iv) an issue with the cheque date, etc.

Cheque bounce is one type of cheque dishonour that occurs when the bank refuses to pay the amount drawn on the cheque on the ground that the bank account does not have sufficient funds.

The prevailing law of Nepal provides two distinct remedies against cheque bounce in Nepal, which are illustrated in the below-mentioned figure:

Parties can seek either of the remedies mentioned above for offenses related to cheque bounce.

The Banking Offense and Punishment Act prohibits any person from issuing a cheque with prior knowledge that his/her account does not have sufficient funds to cover the amount of the cheque drawn. Such an act shall be considered an offense against the state; therefore, the aggrieved party can file an FIR with the police authority. The public prosecutor shall file the case before the concerned District Court, and the state shall take responsibility for overseeing the case.

The detailed process for initiating a cheque bounce case in Nepal is as follows:

Kindly note that the aggrieved party has the right to request the bank to blacklist the person who issued the cheque. Upon receiving the request, the bank will initiate the blacklisting process. As a consequence, all existing bank accounts of the drawer of the cheque shall be blocked, and the drawer shall not be allowed to open a new bank account.

4.1 Punishment

Section 15 of the Banking Offence and Punishment Act, 2064(2008) outlines the following punishments for cheque bounce offences:

1. A fine amount equal to the value of the bounced cheque.
2. Recovery of the amount equal to the cheque's value.
3. Imprisonment for a period not exceeding three months.

4.2 Time Limitation to Initiate the Case of Cheque Bounce in Nepal

To initiate a case for a cheque bounce, the FIR (First Information Report) should be submitted within 1 year from the date of the cause of action.

The Negotiable Instruments Act is applicable when an individual draws a cheque on a bank without sufficient funds. In such cases, the aggrieved party has the right to claim interest on the amount under the Negotiable Instruments Act, which is not permissible when initiating a case under the Banking Offense and Punishment Act.

The detailed process for initiating a case of cheque bounce in Nepal under the Negotiable Instrument Act in Nepal is as follows:

5.1 Punishment

Section 107(a) of the Negotiable Instrument Act, 2034 (1977) provides the following punishments for cheque bounce:

i. Recovery of the amount with interest.

ii. Imprisonment not exceeding three months or a fine of up to 3000 Rupees or both.

5.2 Time Limitation to Initiate the Case

Under the Negotiable Instrument Act, the time limitation to file a case at the concerned district court is 5 years from the date of the cause of action.

The Negotiable Instruments Act provides the aggrieved party with the right to recover interest on the amount drawn through the cheque, whereas the Banking Offence and Punishment Act does not provide for such a remedy. Pursuant to the applicable law, the aggrieved party has the right to recover 10% interest on the amount from the date on which such amount was due to be received.

The prevailing legislation does not restrict compulsory adherence to one specific remedy. It is entirely at the parties' discretion to choose any available remedy.

Date of Publication: 22 August 2023

Disclaimer: Bhandari Law and Partners is one of the premier legal firms in Nepal with team of best professional lawyers in Nepal. This article, cheque bounce in Nepal published on website of the law firm is just for information purpose only. It shall not be taken as the legal advice, advertisement, personal communication, solicitation or inducement. Bhandari Law and Partners or any of the team members of the firm shall not be liable for the consequence arising of the information provided. As the factual situation may be different on your case, thereof if you need further legal advice on the subject matter, don't hesitate to get in touch with Us.