Bounced/ Dishonoured Cheque – How To Prevent It From Being Bounced?

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What is a bounced/ dishonoured cheque?

A bounced/ dishonoured cheque is a cheque that could not be processed by the bank for various reasons, ranging from minor spelling mistakes to more serious ones such as when the account of the person who issued/ signed the cheque does not have sufficient money to pay the transaction.

Be it minor mistakes or serious mistakes, the consequences (as will be pointed below), will be the same. It is therefore advisable to take note of the checklist below to ensure that the cheque that you have drawn will not be bounced/ dishonoured by the issuing bank.

How does one prevent a cheque from being bounced/ dishonoured?

1. Ensuring the name of the receiver is properly written on the cheque

Depending on the receiver:

  1. If the receiver is an individual, ensure that the name is written onto the cheque in a way that it leaves no room for others to add additional alphabets into the name;
  2. If it is a company, ensure that the full company name including its prefix (Sdn Bhd, Pty Ltd, Ltd) is written onto the cheque;
  3. Add a running line at the end of what is written to ensure that no one else can add additional words to the cheque.

2. Ensuring that the amount is properly written on the cheque

  1. As with names, ensure that the amount is written properly and in a way that leaves no room for others to add additional numbers into it; and
  2. At the end of the amount, always write the word ‘ONLY’.

3. Signature

Ensure that the signature is signed properly and at the proper space given.

4. Date

Ensure that:

  1. A cheque is dated (if not it will bounce);
  2. The date on the cheque is not backdated, as a cheque that is not presented for payment within six (6) months from the date of issue, it is considered a stale cheque; and
  3. There is sufficient money in the account in which the cheque is being drawn or else it will be bounced on the day of processing.

5. Miscellaneous

Ensure that there are no scribblings or overwriting on the cheque (or else it would be bounced). Always write a new cheque if there are mistakes on the cheque.

What are the consequences of drawing a dishonoured/ bounced cheque?

  1. Any person who issued/ signed a cheque that is subsequently dishonoured/ bounced can be sued by the receiver of the cheque without the need to prove anything further beyond the fact that he received a dishonoured/ bounced cheque1.
  2. Any person who issued/ signed the cheque which is subsequently dishonoured/ bounced2:
    1. Is taken to have accepted the fact that he has signed/ wrote the cheque, agreed to pay the sum written on the cheque to whoever that is due and is compelled to pay the sum provided that the prerequisite court proceedings have been instituted against him;
    2. Cannot subsequently deny that he does not have the capacity to issue/ sign the cheque; and
    3. Cannot subsequently deny that the cheque is invalid.
  3. Any person who forged a signature of a cheque will incur all the liabilities above3.
  4. In regards to the amount of damage needed to be paid by the two categories above4:
    1. The receiver of the cheque can claim for the full amount from the who issued/ signed the cheque, the interest accrued, and also the cost of instituting a claim against the person who issued/ signed the cheque;
    2. In the case of a foreign cheque, the receiver can claim the items mentioned above in line with the current exchange rate;
    3. The interest accrued can be withheld by the court if it is necessary to do so in the interest of justice.

If the above ever happens:

  1. The issuing bank can and will close your bank account;
  2. Your name will be blacklisted;
  3. All your other bank accounts at other banks will be notified and will be closed as well;
  4. You are prevented from opening a bank account for a specific amount of time;
  5. It will also affect your applications for loans, credit cards and other banking facilities.

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1. Section 47 (2), Bills of Exchange Act 1949.

2. Section 55, Ibid.

3. Section 56, Bills of Exchange Act 1949.

4. Section 57, Ibid.