Cheque Bounce Cases Becoming A Growing Nuisance

Cheques, traditionally considered a secure method of payment, are increasingly being misused as instruments of fraud in Nepal. From personal loans to vehicle transactions, cheque bounce cases have led to a surge in complaints and legal cases, undermining public trust in the financial system.

One such case involves Harisharan Poudel of Kushma Municipality-7 in Parbat district. He borrowed Rs 548,000 from his friend Prem Kumar Chhetri and repaid the amount using three cheques issued from the then Nepal Bangladesh Bank in the name of his firm, Poudel Agriculture and Livestock Farm. However, the cheques were dishonored. Based on Chhetri’s complaint and a police investigation, the District Attorney’s Office filed a banking offense case at the Parbat District Court on May 15.

In a similar incident, Sarjaman Gopali of Bafal, Kathmandu, borrowed Rs 415,000 from a friend to send his brother to the UK. He issued a Nepal Bank cheque in repayment, which was later dishonored. Following an investigation, a banking offense case was filed against Gopali at the Kathmandu District Court on June 6.

Another case involved Sahadev Gautam and Hem Kumar Pokharel, both from Kathmandu, who exchanged vehicles with payment made via cheque. The case reached the court after a Rs 1.5 million cheque from Muktinath Bikas Bank issued by Pokharel to Gautam bounced. The Kathmandu District Court registered the case on June 6.

Rising Cases Undermining Trust

A cheque instructs a bank to pay a specific amount from the issuer's account to the bearer. While globally accepted as a cash equivalent, the growing misuse of cheques has raised serious concerns. Dishonored cheques have become common in both personal and commercial transactions, with public trust in the cheque system steadily eroding.

This trend is backed by rising numbers of complaints and legal cases. According to Nepal Police data, there were 2,373 banking offense cases in fiscal year 2020/21. This number soared to over 13,000 by 2023/24. In just the first six months of the current fiscal year (up to mid-January), around 7,000 cases had already been registered. Officials estimate this number could exceed 15,000 by the end of the year.

The trend is also reflected in the workload of government attorneys. On a single day—Friday—the District Attorney’s Office in Kathmandu filed 38 cases, 20 of which were related to dishonored cheques.

Legal Framework and Recent Amendments

Previously, under the Bills of Exchange Act, victims could directly file dishonored cheque cases in court. However, following amendments to the Banking Offenses and Punishment Act, 2007, only the government can now file such cases based on police investigations.

Under the amended law, a victim must file a police complaint within one year of the cheque being dishonored. A court case must then be initiated within six months of the police report. If the account lacks sufficient funds, banks must notify the account holder and allow 45 days to deposit the required amount. If this deadline passes, the bank must return the cheque within three days, confirming it as bounced.

Misuse Enabled by Easy Access

Banks and financial institutions regulated by Nepal Rastra Bank (NRB) provide chequebooks free of charge upon account opening. As per NRB guidelines, banks cannot charge service fees for clearing cheques up to Rs 200,000, making them widely accessible and, consequently, vulnerable to misuse.

“Free cheques upon opening an account have made them easy to exploit,” said Analraj Bhattarai, Chairman of the Bank and Financial Institutions Committee at the Confederation of Nepalese Industries and a former banker. “This accessibility has led to fraudulent practices.”

NRB officials argue that the policy supports financial inclusion. “To expand financial access, cheque books and clearing services are offered free up to certain limits,” said NRB spokesperson Kiran Pandit. He acknowledged, however, the rising misuse and said regulatory measures are under consideration.

Pandit also confirmed that NRB is working on new procedures to deal with dishonored cheques in line with the amended law, as announced in its third quarterly monetary policy review.

Adjusted Penalties

The amended Act also revises penalties for cheque bounce offenses. While fines have been reduced, imprisonment is now scaled according to the transaction amount involved. In addition to repaying the full amount stated on the cheque along with interest from the date of issuance, the convicted individual may face jail time based on the following thresholds.

For bounced cheques involving up to Rs 1.5 million, the penalty includes a prison term of up to one month. If the amount ranges from Rs 1.5 million to Rs 5 million, the imprisonment can extend up to three months. For transactions involving between Rs 5 million and Rs 100 million, the convicted party may face up to one year in prison.

If the dishonored cheque is valued between Rs 100 million and Rs 1 billion, the maximum jail term increases to two years. For cheque amounts exceeding Rs 1 billion, the imprisonment can go up to four years.

The law also allows for case withdrawal if both parties reach a settlement.