04-July-2016 written by : FSI-Team
The person who seeks to draw credit in future for building up a home or buying a car, CIBIL score is a very prized possession. They ought to take steps that help build credit rating. However at times, unforeseen events such as an EMI cheque bounce or outstanding credit bill, or default by a co-applicant, misreporting in CIR as “settled account” and many such events come as real shockers of life. You have no choice but to access the damage and begin the mending work. Here in this post, we will take up how cheque bounce ruins your CIBIL rating.
Cheque bounces are one of the most common financial frauds. One can be booked under a civil or criminal offence if found guilty of wilful cheque dishonour. When a cheque bounces it hurts pockets of both the parties, whether the one involved in inward clearing or the outward cleared. Both need to pay payment charge and penalty charge to the bank. When the issuer is found to be wilful defaulter of bad cheque, they may suffer irreparable damage involving, a penalty up to double the amount of the cheque or prison up to 2 years.
Coming to CIBIL score, the bad cheque would not leave your credit history early. There can be several reason for dishonoured cheque:
Whatsoever be the reason, a failing cheque for EMI or credit bill, will certainly affect the CIBIL rating. The banks check your history to ensure that you are credit worthy and there is least risk of payment default with you. But with history of defaulting with a bad cheque, the banks can straight away reject your loan application in future. So, your authenticity is under the question when your cheque fails. You should immediately seek action to mend the loss or you may be added to cibil defaulters list. This will have a deeper damage to your credit worthiness and call for legal hassles in the future.
When an EMI cheque is bounced, the bank can seize your property against loan (security asset) and auction it to raise the funds. However this would happen only after issuing the notice. As per Reserve Bank of India, if the value of cheque is more than 1 crore and the issuer defaults more than 4 times, the bank is authorised to auction the property. The bank can deduct amount from your bank accounts and charge the additional penalties too.
In case you have failed to make a payment with a cheque, the company or the institution involved can sue you for a criminal offence. However the procedure will take at least 3 months and you will get another chance to make the payment. But if you fail this time as well, the other party can go to the court of Law within 30 days of receiving Cash Return Memo. The case can be settled out of the court if both the parties wish so.
As per Indian penal code, if cheque bounce is wilful, the issuer of check can be prosecuted under Section 138 of Negotiable Instruments Act, 1881 or Section 417 and Section 420. Section 138 requires the aggrieved party to send a legal notice. You may face prison term for two years or fined as high as twice the cheque amount in case found to be wilful guilty. Sec 417 and 420, calls for non-bailable immediate warrant. If more than 1 cheque is dishonoured the aggrieved can file separate cases against each bad cheque.
As per RBI guidelines a bank is authorised to stop issuing cheque book to any customer found repeatedly (at least four times) indulged in bouncing of cheques of over Rs 1 crore. So, you should always ensure that you do not sign the cheques if your account lacks the sufficient balance. If however your account balance exhausts after issuing the cheque you can use stop payment and refer cancellation to your bank and inform the payee in advance. This way you get the time to arrange for funds and save your credit score.
All in all, you would enter a big legal muddle besides the credit rating loss, if your cheque fails to meet the obligation. Being a wise consumer, you should always keep a check on your account balance and ensure that your cheque doesn’t fail ever.