Teach a Lesson to Errant Builder for Bounced Cheques

Refund Cheque issued to the Home buyer by the Builder was dishonored due to insufficient funds?

Here is a simple-by-step guide for legal action for the home buyer

Builders accept up to 20% of the total value of the flat as Ernest money or Booking amount. Many a times they utilize these funds for some other projects the home buyer is stranded for several years. After several years of follow up, the builder finally agrees to refund the booking amount by cheque! A cheque is a negotiable instrument. Many a times fraudulent builders use the tactics of issuing cheques towards refund of the Booking amount. They are aware of the insufficient funds in their account, yet they consider this as a delaying tactics towards repayment to the home buyers.

Legally, the builder who issues the cheque is called ‘drawer’, home buyer - the person in whose favour, the cheque is drawn is called ‘payee’, and the bank who is directed to pay the amount is known as ‘drawee’. Cheques bearing large amounts remain unpaid and are returned by the bank on which they are drawn.

When a cheque is dishonoured, the drawee bank immediately issues a ‘Cheque Return Memo’ to the banker of the payee mentioning the reason for non-payment. The payee’s banker then gives the dishonoured cheque and the memo to the payee. The home buyer or payee has the right to prosecute the drawer legally.

The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. According to Section 138 of the Act, the dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.

The payee may legally sue the builder / defaulter / drawer for dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards payee.

The payee has to send the notice to the drawer with 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer. If the cheque issuer Builder / Developer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.

However, the complaint should be registered in a magistrate’s court within a month of the expiry of the notice period. It is advisable to consult an advocate.

Points to remember for filing the case

One of the several Bounced Refund Cheques issued by
Shankar Nangre, Shree Sai Developers and Builders

Retain photocopies of the receipt issued by the Builder. Generally builders ask for original receipts before handing over the refund cheque. These receipts are considered as vital proof for the ‘consideration or legal obligation’ of the builder to repay the home buyer.

The cheque should have been drawn by the drawer on an account maintained by him. Insists that the same entity repays where you had made the initial payment. For Example – If you paid earnest money to ABC Developers. Ideally ABC Developers should issue you the refund cheque.

The cheque should have been returned or dishonoured because of insufficient funds in the drawer's account. Check with your bank and get the reason clearly mentioned on the Bank Memo. Court considers Banker’s memo as primary evidence of dishonour. Original Bank Memos are important evidence – keep them safe.

The cheque is issued towards discharge of a debt or legal liability. Produce the agreement (if any) signed between you and the developer.

Notice within 30 days

Within 30 days upon the cheque returned, issue a notice (preferably through your lawyer) demanding the money through alternate means. Send the Notice preferably by Indian Post – Registered AD or Speed Post. Even if the Builder rejects to accept the notice, that’s fine. Get the acknowledgement from the Post Office – saying ‘the party declined to accept’. This will suffice the purpose of serving the notice.

If the Builder / Developer makes payment of the cheque amount within 15 days from the date of receipt of the notice, then he is discharged of his legal duties. In other words -he does not commit any offence.

After receiving the notice, if the Builder / Developer doesn't make the payment within 15 days from the day of receiving the notice, then he commits an offence punishable under Section 138 of the Negotiable Instruments Act.

You must file a complaint with the Magistrate’s court within 30 days from the end of the 15 days’ notice period.

In simple words, within 45 days since the notice was issued, you must file your complaint with the court. Time is the essence in this case. Sometimes judges condone the delay, based on compelling circumstances, however best strategy is to file within 15 + 30 days. And Don’t wait for the 45^th day. You can file case any time after the 15 days’ notice period is over. Sooner the better! 

Worst possible, yet legally allowed scenario: One day 1 cheque was dishonoured, you may issue demand notice anytime till day 30. On Day 45, your time starts ticking and you must file the case in the court before day 75.
Best Scenario: Day 1, cheque is dishonoured, Day 2 – you issue the demand notice and day 18 – you file the case in the court!

 Selecting the Magistrates court is simple. Check with your Bank (generally close to your home) which Police Station area it falls within. And then ask the police station – which court to approach for bounced cheques. Off course, your advocate can guide you better on this.

Do NOT submit original documents like returned cheques / Bank Memo / Agreement copies at the time of filing the case. Photocopies are sufficient!

Submit the original documents only when the Hon’ble Judge directs you at the time of verification stage.

You need to pay 2% of the cheque value as Court Fee.

For example - Bounced cheque of Rs 1,00,000, the court fee would be Rs 2,000. This is apart from the fees that you would pay to the Advocate. Don't worry and dont hesitate due to this fees. The court will consider this cost while giving the judgement and you will recover most of it eventually.

Be Patient. There is lot of backlog and courts are overburdened with the work! Expect 2 to 5 years for disposal of your case. This time may vary from case to case. 

However such cases are open and shut type of cases!

Money paid to the Builder by Cheque - Yes

Home delivered in time - No

Refund Cheque bounced - Yes

Legal Right to claim refund with compensation- Yes

Punishment & penalty

On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue summons and hear the matter. If found guilty, the defaulter builder / developer can be punished with monetary penalty which may be twice the amount of the cheque or imprisonment up to two years or both.

The bank also has the right to stop the cheque book facility and close the account for repeat offences of bounced cheques.

If the builder has not signed any agreement with you, this case is the best possibility of recovering your money! Ask for a refund cheque!