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Cheque Returns – What can you do to recover your money?

Finance, Business and Debt Management Consultancy Services

Cheque Returns – What can you do to recover your money?

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A current account or a cheque account, considered to be the most used business transaction method in Sri Lanka, a cheque is a preprinted piece of paper with some standard and regulated fields and numbers on it, anyone who is having a current account in a bank can issue a cheque instead of cash and the receiver can collect the sum mentioned in the cheque from issuers bank or deposit it on his account. Cutting short, most of the business community knows what is a cheque and a current account and what they don’t know or confused about is “ what to do when a cheque get returned”, cheque returns are very common and there can be various reasons, let’s look at the possible reasons and what you can do about it.

Issuing a cheque without funds in the account is a criminal offence under the section 398 of the penal code and Debt Recovery (Special Provisions) Act No 2 on 6 March 1990 (section 25)

In Sri Lanka, cheques are being used more than a payment instrument, cheques used as a security, used as a guarantee, used as a promissory note, used to make third-party transactions. However, the biggest problem relies upon the dependability of the cheque (dependability of the issuer), dishonoured cheques are one of the biggest problems in the business community and there is no clear solution to overcome the same, many business shutdowns due to this fact.

Saying that, it is not very easy to open a current account, client has to go through the procedures of the bank to open and operate a current account, crib report, introducer and past records often analyzed by banks before opening a current account and still there is no guarantee for the transaction until you get the realized funds. Most of the banks are trying to maintain the quality of their current account holders and they close down the account if there are cheque returns.

The reason for cheque returns/ dishonour?

The reasons can be categorized into two, one is a mistake and the second is a fraudulent motive

Mistakes

  1. Different in the amount in figure and amount in words
  2. Different in signature or required signatures not in place
  3. Postdated cheque
  4. Alterations not acknowledged by additional signatures
  5. The cheque is stale (expired, more than six months from the date mentioned in the cheque)

When a cheque get returned due to a mistake, you can always talk to the issuer and rectify the same without an issue. The receiver of the cheque has to determine the motive of the issuer with his relationship and experience

Fraudulent Motive

  1. Cheque issued with a motive of cheating
  2. Purposely making mistakes when drawing a cheque
  3. Drawing a cheque without funds in the account

Problem starts when you got cheated by the issuer, though issuing a cheque without funds in the account is a criminal offense under the section 398 of the penal code and Debt Recovery (Special Provisions) Act No 2 on 6 March 1990 (section 25), this law punishes the issuer with remand and followed by jail term, this law is to punish the fraudsters criminally and the receiver might not get any financial benefit or money recovery.

The beneficiary of the cheque has to take a decision on proceeding with the criminal action or the civil action, criminal action is less time consuming but has the risk of no financial benefit as mentioned above.

Therefore, you can try the civil action under Money Recovery Action (Contract) or Liquid Claim Procedure

Money Recovery under the Contract

Better known as the money recovery action in Sri Lanka. The receiver must prove/have the following

  1. Have to prove that there was a contract.
  2. Should have documentary evidence and/or witnesses. (Dishonored cheque can be used as evidence of contract), verbal agreements cannot be proved.

Concrete evidence and documents are important as the issuer have better chances to manipulate the contract, thus this may lead to a long period of litigation procedure.

The advantage of this method is, the litigation is for the contract and the beneficiary can recover the money which is not covered by the cheque but due to the contract.

Liquid Claim Procedure

Compared to above, liquid claim procedure is less time consuming and you need not provide lots of evidence and documents, this method solely focus on recovering the money related to the dishonoured cheque thus the dishonoured cheque is sufficient to proceed with legal action, however, the claimant has to have followed in place.

  1. The dishonoured cheque should be a duly completed cheque at the time of receiving and without any alterations or differences.
  2. The beneficiary must duly present the cheque to the bank on the date mentioned or after, should not exceed 6 months from the date mentioned on the cheque
  3. The payee must obtain and preserver the original CRN (Cheque Return Notification)
  4. The payee must immediately send a notice to the issuer informing the cheque was dishonoured and demanding the equal sum. (Notice of dishonour)

The beneficiary can proceed with the litigation process if the payment not settled within the demanded date. This process will help the beneficiary to recover the amount stated in the cheque.

Conclusion

The beneficiary of the cheque can decide on what type of litigation process he/she wants to go with, it depends on the current status of the issuer and related factors, thus we advise to seek expert advice before starting the litigation process.


This article originally published on advisor.lk and republished with permission

 

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