Date : 09-02-2019 13:58
What steps are taken by Indian government for cheque bounce?
There are various steps taken by the government for check bounces.
In the age of netbanking, businesses
across India use cheques, including post-dated ones, to make and receive
payments from vendors, suppliers and customers. In some cases, such cheques bounce
and the matter ends up in court. It
is easy for the drawer of a dishonoured
cheque to file an appeal and obtain a stay on court proceedings. This reduces the credibility of cheques in the world of business.
Here are the proposed changes in the Negotiable Instruments Act on cheque bouncing
The Negotiable Instruments (Amendment)
Bill, 2017, aims to amend the Negotiable
Instruments Act, 1881, asking the drawer of a cheque that has been
dishonoured to pay interim compensation to the complainant.
2. The interim compensation will, however, not exceed 20% of the amount of the cheque that was dishonoured.
3. The interim compensation is to be paid by the drawer of the dishonoured cheque in a summary trial or a summons case. It is applicable even if he pleads not guilty to the charge made in the complaint.
The drawer of the cheque has to pay interim compensation within 60 days from the date of the order. If the
court is satisfied, it can grant an extension of a further 30 days but not beyond that.
5. In case the drawer of the cheque is acquitted in the case, the complainant has to repay the drawer the interim compensation with interest. The repayment has to be made within 60 days from the date of the court order.
6. Aiming to reduce delays in resolution of cheque bouncing cases.
How to deal?
Filing a criminal complaint:
When a cheque bounces the first time, the bank issues a ‘cheque return memo’, stating the reasons for non-payment. The holder can resubmit the cheque to the bank within three months of the date on it, if he believes it will be honoured the second time.
The other option would be to prosecute the defaulter legally. The first step is to send a legal notice to the defaulter within 30 days of receiving the cheque return memo. All the relevant facts of the case, including the nature of transaction, amount, date of depositing the instrument in the bank, and subsequent date of dishonouring, should be clearly mentioned in the notice. 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. However, the complaint should be registered in a magistrate’s court within a month of the expiry of the notice period.
If you fail to file the complaint within this period, your suit will become time-barred and, hence, not be entertained by the court unless you show sufficient and reasonable cause for the delay. On receiving the complaint, along with an affidavit and relevant paper trail, the court will issue summons and hear the matter. If found guilty, the defaulter can be punished with a prison term of two years and/or a fine, which can be as high as twice the cheque amount.
However, the defaulter can appeal to the sessions court within one month of the date of judgement of the lower court. If a prolonged court battle is not acceptable to both the parties, an out-of-court settlement can be attempted at any point.
Filing a civil suit:
While the above-mentioned process is helpful in taking a defaulter to task, it may not always result in recovery of the pending dues. Hence, one can file a separate civil suit for recovery of the cheque amount, along with the cost borne and the lost interest.
A summary suit is different from an ordinary suit as it does not give the accused the right to defend himself. Instead, the defendant has to procure permission from the court to do so. However, remember that summary suits can be availed of only in recovery matters, be it promissory notes, bills of exchange or cheques.
These legal remedies are available only where pending debt or liability can be clearly established. Hence, if a bounced cheque was issued as a donation or as a gift, the holder cannot legally sue the defaulter.
Risk faced by defaulters:
A jail term or heavy penalty isn’t the only consequence faced by the issuer of a dishonoured cheque. The bank has the right to stop the cheque book facility and close the account for repeat offences of bounced cheques. However, the RBI clearly states that such action can be taken only if the default has taken place at least four times on cheques valued at over Rs 1 crore. A bank can also deduct money from the defaulter’s account if there is an explicit contract giving the bank such a right.
Changes in the pipeline:
The option of dragging an offender to court under Section 138 of the Negotiable Instruments Act may not be available for long. If the amendment proposed by an interministerial group—set up last year to look into policy and legislative changes to tackle the large number of pending cases—are accepted, all cases of dishonoured cheques will have to be decided only through arbitration, conciliation or settlement by lok adalats. If the matter is referred to an arbitrator, the latter will hear both the parties and pass an award binding on both. This can only be appealed on grounds that it is invalid or the defendant was not given adequate time to present the case, or was not given notice about the arbitrator’s appointment.
If the matter is referred for conciliation, a third person has to help the parties come to a settlement. Lok adalats function on similar lines. In both these cases, if the disputing parties are unable to settle, the matter can be taken to court again.
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