When a cheque is presented to a bank for payment and if it is not paid to the drawee, it is said to be dishonored or bounced.
It is a negotiable instrument and so dishonoring of cheques is said to be a Criminal Offence under NEGOTIABLE INSTRUMENT ACT, 1881. The guilty can be charged with upto 2 years of imprisonment.
Cheques on which Account Payee is written cannot be en-cashed by any person. It allows the money to be transferred from one account to another directly. This ensures that the money is transferred to the payee’s account only. If a cheque is Account payee, the payee cannot endorse it in favor of any other person.
In order to decrease the use of cheques, RBI paper has requested the banks to charge their customers for depositing/withdrawing money using cheques. It has also suggested the Government agencies not to charge “convenience charge” for the electronic payment of utility bills.
Other suggestions were to limit the number of free cheques in a year to a very small number, high fee on new cheque books, and mandatory online payment of credit cards issuing post dated cheques.