A dishonoured cheque is one of the most common commercial disputes in Pakistan, and one where the first instinct — file a criminal case immediately — is frequently not the one that recovers the money.

There are two routes, they serve different purposes, and they are often best run together rather than instead of one another.

First, establish what actually happened

Obtain the bank memo stating the reason for dishonour. It matters:

  • Insufficient funds is the classic case and the strongest position
  • Payment stopped raises different questions, since the drawer may assert a dispute
  • Signature differs or account closed point in different directions again
  • Technical defects — a stale cheque, an alteration — may weaken the position considerably

Keep the original cheque, the memo, and the documents evidencing why the cheque was given. That last point is where most cases are won or lost: a cheque given as security for a transaction that did not complete is a very different matter from a cheque given in payment of a delivered invoice.

The criminal route

Dishonouring a cheque issued dishonestly can attract criminal liability. In practice the criminal route works as pressure: it brings the drawer to the table quickly, because the prospect of proceedings concentrates attention in a way that a civil suit rarely does at the outset.

Its limitation is that it is not, in itself, a mechanism for recovering money. A conviction does not put funds in your account. Settlement usually does, and the criminal process is what prompts settlement.

It is also open to abuse, and the courts are alert to that. Attempting to criminalise what is really a commercial dispute — a contract that went wrong, a partnership that collapsed — tends not to succeed and can rebound on the complainant.

The civil route

A suit for recovery is what produces an enforceable decree. It is slower, but it is the route that ends with an order the court will execute against the defendant's assets.

Where the payee is a financial institution the position differs again, and recovery proceeds before the Banking Courts under a comparatively expedited procedure.

For an ordinary commercial creditor, a recovery suit — combined with early interim relief where there is a risk of assets being dissipated — is usually the substantive remedy, with any criminal complaint running alongside it.

Send a proper legal notice first

Before either route, a legal notice should go to the drawer. It should:

  • Identify the cheque, the amount, the date and the bank
  • State the reason for dishonour as recorded on the memo
  • Set out the underlying transaction the cheque related to
  • Demand payment within a specified, reasonable period
  • State what will follow if payment is not made

A notice does more than satisfy form. A significant proportion of matters settle at this stage, because it is the point at which the drawer realises the creditor is prepared to litigate. It also establishes a record that assists in whichever proceedings follow.

Practical points that decide these cases

Do not delay. Limitation runs, and the longer a cheque sits, the easier it is for the drawer to construct an account of a disputed transaction.

Preserve the paper. Invoices, delivery documents, correspondence, account statements, and any acknowledgement of the debt. A cheque alone establishes less than people assume once the drawer alleges it was security rather than payment.

Be honest about the underlying transaction. If there is a genuine dispute about performance, a court will find it, and the case is better prepared on that footing than on a pretence that none exists.

Consider recoverability before you spend. A decree against someone with no attachable assets is an expensive piece of paper. It is worth forming a view on the defendant's means before committing to litigation — and we will give you that view candidly.

If you are the one who issued the cheque

Take advice rather than ignoring the notice. There are legitimate defences — that the cheque was given as security, that the underlying consideration failed, that the amount was altered, that the debt was settled otherwise — and they are considerably more effective raised properly and early than after an ex parte order.

How the firm can help

We act for both creditors and drawers in cheque matters: sending and responding to legal notices, filing and defending recovery suits, pursuing and defending criminal complaints, and enforcing decrees once obtained.

We will also tell you when a matter is not worth pursuing. See civil litigation and banking and finance.