Everything in life should happily bounce … except a cheque

Where people have move towards digital platforms like Paytm, Tez, Instamojo etc. for making secured payments, businesses across India still use cheques. In certain cases, such cheques bounce and the matter ends up in court.

Injustice is caused to the payee of a dishonoured cheque who has to spend considerable time and resources in court proceedings to realize the value of the cheque. Such delays compromise the solemnity of cheque transactions.

Minister of State for Finance Shiv Pratap Shukla said, there are 16 lakh cases of cheque bounce still lying in District and Subordinate courts and 32,000 cases are in High Courts. Therefore, there was a need to speed up the disposal of such cases.

 

Why the amendment?

As per the Statement of Objects and Reasons of the Bill of 2017, the Negotiable Instruments Act of 1881 is amended “with a view to address the issue of undue delay in final resolution of cheque dishonor cases so as to provide relief to payees of dishonoured cheques and to discourage frivolous and unnecessary litigation which would save time and money”. Further, it is expected that “the proposed amendments will strengthen the credibility of cheques and help trade and commerce in general by allowing lending institutions, including banks, to continue to extend financing to the productive sectors of the economy”
A cheque issued as a gift/donation/any other obligation, will not be covered under Section 138 of the Act. For this section to apply, the cheque has to carry a legal obligation. A cheque expires after three months from the date on which it is issued.

 

What to do?

A bounced cheque cannot be processed because the account holder has non-sufficient funds (NSF). Banks return or bounce these cheques rather than honoring them. Passing bad cheques can be illegal and is punishable by imprisonment up to two years or with monetary penalty or with both.

Once the cheque has been returned by the bank, then before filing a legal complaint against the drawer (Maker or writer of a bill of exchange), you must first send a demand letter/ legal notice to such drawer within a period of 30 days from the date the cheque has been returned to you by the bank. The letter must demand the amount from the drawer and also the legal action that can be initiated against him under the Negotiable Instruments Act in case the amount is not paid within a stipulated time period (usually 15 days).

If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the payee has the right to file a criminal complaint under Section 138 of the Negotiable Instruments Act.

What’s the amendment?

The bill seeks to amend the Negotiable Instruments Act, 1881. The bill inserts a provision allowing a court trying an offence related to cheque bouncing, to direct the drawer to pay interim compensation to the complainant as per section 143A in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and in any other case, upon framing of charges.

(For the immediate reference of the readers section 143 A is reproduced herein below.)

‘‘143A (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Court trying an offence under section 138 may order the drawer of the cheque to pay interim compensation to the complainant—

(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and Short title and commencement.

 (b) in any other case, upon framing of charge.

 (2) The interim compensation under sub-section (1) shall not exceed twenty per cent of the amount of the cheque.

 (3) The interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.

(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.

(5) The interim compensation payable under this section may be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973.

(6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973, shall be reduced by the amount paid or recovered as interim compensation under this section.’’.

 

The very purpose of bringing this amendment is to discourage the incident of cheque bouncing and also to discourage unwanted defense of the cases filed under sec 138 of NI Act. The moment the court records the plea of not guilty, court has a power to direct the accused to pay 20% of the amount of the cheque as compensation to the complainant . This will be additional burden on the accused over and above the amount of fine and also the punishment of imprisonment .

Thus it becomes very difficult for the defaulter to contest the matter, without any substantial defense.

Similarly legislature has also made it difficult to prefer appeal against the judgment of trial court by inserting sec 148 in the NI Act.

 

Section 148 has been inserted in the Act which says that if a drawer is convicted in a cheque bouncing case and if he files an appeal against conviction under section 138, the appellate court may direct him to deposit a minimum of 20% of the fine or compensation awarded by the trial court during conviction. This amount will be in addition to any interim compensation paid by the drawer during the earlier trial proceedings.

In case the drawer is acquitted (during trial or by the appellate court), the court will direct the complainant to return the interim compensation (or deposit in case of an appeal case,) along with an interest as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order.

(For the immediate reference of the readers section 148 is reproduced herein below.)

In the principal Act, after section 147, the following section shall be inserted, namely:—

‘‘148. (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, in an appeal by the drawer against conviction under section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty per cent. Of the fine or compensation awarded by the trial Court: Provided that the amount payable under this sub-section shall be in addition to any interim compensation paid by the appellant under section 143A.

 (2) The amount referred to in sub-section (1) shall be deposited within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the appellant.

 (3) The Appellate Court may direct the release of the amount deposited by the appellant to the complainant at any time during the pendency of the appeal: Provided that if the appellant is acquitted, the Court shall direct the complainant to repay to the appellant the amount so released, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.’’.

 

How is the recovery done?

The said amount of interim compensation may be recovered in the manner provided under section 421 of CrPC – by way of attachment and sale of any movable property of the drawer, or a warrant to the Collector of the concerned district authorizing him to realize the amount as arrears of land revenue from the movable or immovable property, or both of the defaulters.

Reward of amendment

The legislation will ensure the credibility of cheques, the drawer will rest assured that the instrument will not be dishonored also it empowers the payee to get compensation much earlier to carry on with his business activities and therefore he will not have to wait for recovery of his amount due to stay on the proceedings.

 

 ~Prinkle Talesara

 

                                                                                                                                                          

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