The government’s proposal to amend the Negotiable Instrument Act to get tough on cases of cheque bouncing is inherently flawed. It does not differentiate between a cheque that has bounced due to insufficient funds and a cheque, which has bounced because of willful default.
As per the proposal, any cheque bounce would be regarded a criminal liability under Section 138 of the Act. An alleged offender would also not be allowed to appear before any court unless he deposits up to 20 per cent of the disputed amount.
If the deposit so ordered is not made, then an accused would lose the right to produce its defence, according to the recommendations made.
Legal experts say that people should exercise additional caution while giving a post-dated cheque.
Says Rajesh Narain Gupta, managing partner of SNG and Partners: “The downside of the Act is that it does not distinguish between the intention of the party and a willful default, whether the intention was criminal or not. However, the safety net is that if a cheque is dishonoured due to a genuine problem, he still gets enough notice period to pay. If he doesn’t pay within the notice period, only then he becomes liable for criminal prosecution.”
A cheque is a negotiable instrument. The word cheque under the Act also includes ‘Cheque in Electronic Form’. The cheques have to be deposited into the payee’s bank account.
Legally, the author of the cheque is called ‘drawer’, the person in whose favour the cheque is drawn is called ‘payee’ and the bank who is directed to pay the amount is known as ‘drawee’. The Negotiable Instruments Act, 1881 is applicable for cases of dishonour of cheque. This Act has been amended many times since 1881.
According to Section 138 of the Act, dishonouring a cheque is a criminal offence, punishable by imprisonment up to two years, a monetary penalty or with both. If the payee decides to proceed legally, then the drawer should be given a chance of repaying the cheque amount immediately. Such a chance has to be given only in the form of notice in writing.
The payee has to send the notice to the drawer with 30 days from the date of receiving “cheque return memo” from the bank. The notice should mention that the cheque amount has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer.
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.
“One should also be careful in issuing a post-dated cheque in private transactions because it can be misused. For example, if you have signed an agreement to buy a house and you have given a post-dated cheque to the party, but the sale does not materialise or you don’t get possession of the house, then there is a possibility of the cheque getting misused. Therefore be careful in issuing a security cheque in private transactions.”
In 2015, the Parliament passed amendments to the Negotiable Instrument Act providing for filing of cheque bounce cases at the place where it is presented for clearance and not the place of issue. The amendments in the Act have implications for over 18 lakh cheque bounce cases pending in various courts in the country.
