Why cheque bouncing provisions under NI Act are ineffective?

Introduction

Sections 138-147 of the Negotiable Instruments Act, 1881 (NI Act from hereafter) were incorporated with a vision to promote the effectiveness of the banking operationsby enhancing the credibility of the banking cheques in business negotiations. This analysis provides an account of the effectiveness with regard to the cheque-bouncing provisions of the NI Act.

 

Scope of the Term “Cheque”

The term “cheque” is defined in the Section 6 of the NI Act. In several cases, cheques’ issues for various reasons were included under this section whereas some were not. For example, blank cheques without any date or signature were not considered cheques as under the scope of the meaning u/s 138 by the courts of law.

 

When an act is Deemed to be an Offense

An act is deemed to be an offense under the NI Act if it fulfilsthe following conditions u/s 138:

  1. A cheque must be drawn in favour of a person (payee) by another person (drawer) on his bank account to make a payment.
  2. The said payment must be, partially or wholly, in discharge of debt that is capable of being enforced by the law.
  3. The cheque must be handed back by the banking official to the holder or the payee in due course by reason of insufficient funds in the drawer’s account or by reason of it exceeding the arrangement the drawer has with the bank.[1]

 

 

Additional Conditions

  1. The cheque must have been presented within its validity period or within 3 months from the date of its issue, provided whichever falls earlier.
  2. The holder or the payee must demand the amount to be paid by written notice in due course within 15 days of the date of the issue of the cheque.
  3. Such a notice has to be issued within the time constraint of 30 days from the day the intimation of the dishonour of the cheque was received.

 

Cause of Action to Arise, in order to File a Complaint

The cause of action arises once the drawer fails to make the payment within the time frame of 15 days from the date when the notice from the payee was received.The complaint must be filed within the time period of 30 days from the expiration of the notice period. In the case of MSR Leathers vs Palaniappan & Anr.[2], the SC reversed its previous judgement from SadanandanBhadran vs Madhavan Sunil Kumara[3] and held that the holder or the payee of the cheque is empowered to issue a statutory notice and can initiate proceedings against the same drawer every time a cheque is dishonoured based on every successive dishonour.

  1. 142 of the NI Act holds it to be mandatory that no court of law can take regard of an offence if the complaint is not filed in writing by the holder or the payee and such a complaint has to be filed within 30 days of the date when the cause of action arises.

 

Effectiveness of these Provisions

  1. In spite of the existence of a well-established legislation, there is an abundance of pending cases with regard to section 138 of the NI Act. Some reasons for such a situation could be as follows:
  2. Lack of judicial magistrates in the country to attend to the hiking number of S. 138 cases.
  3. The banks collecting post-dated cheques in advance and offering more loans liberally as in many casesblind assumptions are made with respect to the financial capabilities in order to reach more people for loans’ disbursement.
  4. There is a state of dilemma amongst the magistrates about whether the case is to be handled according to the NI Act or CrPC since the magistrates are granted a discretionary power in this regard.
  5. The language of the section is in itself unsatisfactory and restricts the scope of the Act.
  6. The grant of adjournments is very liberal and utmost lethargy is observed in cross examination and evidence presentation on account of the advocate for gaining mutual benefits out of the situation.

 

Recent Amendments

  1. The insertion of section 143A to empower the court to direct the accused to pay interim compensation in cases of summons case or summary trials if the drawer pleads “not guilty “. With this new provision the interim compensation is capped to a 20% of the total cheque amount.[4]
  2. The insertion of section 148 states that the appellate court is empowered to give directions to the drawer to deposit an amount of minimum 20% of the fined amount or the compensation that was given by the trial court in case of an appeal made by the drawer against his conviction. The appellate court holds the discretionary power to direct the release of the amount so deposited by the drawer to the payee at any time during the appeal is still pending. This amount, however, must be in addition to the compensation already paid by the drawer in the trails.
  3. This interim compensation (during the trial as well as the amount to be deposited during the appeal, whichever the case may be) has to be paid within 2 months (60 days) from the date of the issuance of the order by the court. Again a discretionary power is provided to the court to, on satisfactory reasons being presented, it can extend the time period by an additional period of 30 days.
  4. In case the drawer is acquitted by either the appellate or the trial court, the holder or the payee is liable to pay back the interim compensation or the deposited amount to the drawer (as may be applicable) with an interest fixed by the RBI. The time period to repay this amount is 60 days with a possible extension of 30 days subject to satisfactory reasons being provided.

Proposed Solutions

  1. There must be exclusive courts to deal with Section 138 cases for the speedy disposal.
  2. The courts must be strict in allowing adjournments to the drawer and a provision must be formulated to dispose off the cases within a year from the date the complaint was filed on.
  3. Appeals must only be allowed if the convict points out the deficiencies in the judgement of the trail court or provides other valid reasons.
  4. In order to ensure that the punishment acts as deterrent, the sentence given or the fines levied must not be reduced in appeals.
  5. The courts must be empowered to increase the deposit amount to the full amount as on the cheque before the start of the trial which will compel the drawer to settle at the earliest.
  6. The courts must adopt an effective procedure in interpretation of the provisions of the NI Act to achieve its objective and strengthen the faith in the Act.

Conclusion

The Amendment Act of 2018, reduced the pendency ratio[5] and took minor steps towards improvement. They current provisions have the potential of paving the way towards the enhancement of the commerce and trade industries. To conclude, we can say that albeit the amendments face challenges yet they appear to cater to the main objective of speeding up the disposal of NI Act cases.

[1] https://www.vakilno1.com/legal-faq/dishonour-of-cheque-section-138-of-the-negotiable-instruments-act.html/amp, last accessed on 24th June’19

[2](2013) 1 SCC 177

[3]1998 (6) SCC 514

[4] https://www.moneylife.in/article/bounced-cheques-sc-offers-a-new-interpretation/30098.html, last accessed on 24th June’19

[5]http://www.mondaq.com/india/x/725662/trials+appeals+compensation/Negotiable+Instrument+Act+2018+AmendmentsA+Closer+Look

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