What is the Negotiable Instruments Act of 1881? (NI Act)

The Negotiable Instruments Act was enacted in India in 1881, formalising the usage and characteristics of instruments like the cheque. The NI Act provided a legal framework for non-cash paper payment instruments in India. Cheques are recognised as negotiable instruments under the above act.

What is a 'Bounced Check'

A cheque that can’t be processed because the account holder does not have sufficient funds is termed as a bounced cheque. Banks return or bounce the cheques that they can’t process these are known as rubber cheques. The banks charge Non-Sufficient Funds or NFS fees for such cases. Passing such kinds of cheques commonly called bad cheques is illegal in some cases and the corresponding crime ranges from a misdemeanour to a felony, depending on the amount and whether the activity involved crossing state lines.

How to prevent your cheques from getting bounced?

Since a bounced cheque is the direct result of Non-Sufficient funds they can be avoided in many ways. Some consumers use overdraft protection or attach a line of credit to their accounts.

What is a dishonoured cheque?

This comes under Section 138 of the Negotiable Instruments Act. It was inserted into the Act vide amendment of 1988. The drawer pays off his lability to the payee through cheque and when bank returns the cheque unpaid due to insufficient balance on the account held by the drawer, the liability/debt remains due to the drawer and the amount remains unpaid. The return of cheque can be because of insufficient funds in the account or due to exceeding the limit of the amount which was agreed to be paid by the bank. Such a default by any person creates a liability under the said provision.

Is there a difference between a bounced cheque and dishonoured cheque?

Yes, there is a slight difference between the 2 terms.  A bounced cheque is in a way a subset of dishonoured cheques because a bounced cheque is a cheque that has been returned because of Non-sufficient funds while a dishonoured cheque could be a cheque which has not been honoured for various other reasons also.

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