Cabinet Approves Amendment to Law on Cheque Bounce Cases

New Delhi: The Cabinet on Friday approved an amendment to a current law to allow for payment of an interim compensation in cheque dishonour cases with a view not to allow unscrupulous elements holding payments, pending long trial, sources said.

An amendment to the Negotiable Instrument Act will allow a court to order for payment of an interim compensation to those whose cheques have bounced due to dishonouring parties, a move aimed at promoting a less cash economy.

The amendment is likely to be introduced in the ongoing Winter Session of Parliament.

Law Minister Ravi Shankar Prasad, while briefing the media about the Cabinet's decisions, said amendment to Negotiable Instruments Act, 1881 has been approved.

The minister, however, did not provide details about the proposed amendment.

However, sources said the amendment would enable the court to order interim compensation to the payee of a cheque, a part of the cheque amount at the trial stage.

If the drawer is acquitted, the court may direct the payee to repay the amount paid as interim compensation with interest, they said.

Similarly, appellate courts would be enabled to order the appellant to deposit a part of the compensation awarded by the trial court at the time of filing appeal.

The amendment has been proposed to help trade and commerce, particularly the MSME sector, and in order to increase the credibility of the cheque as a financial instrument, sources added.

Dishonour of cheques due to inadequate funds in the account of the drawer of the cheque or for other reasons causes lot of distress in the trade, business and MSME sectors.

Dishonouring of cheque causes incalculable loss and inconvenience to payees and "erodes the credibility" of cheques to a large extent.

The Cabinet, sources said, considered the proposal to amend the Negotiable Instruments Act to "address various representations" from the public as well as the trading community regarding the "injustice caused to payees" as a result of pendency of cheque dishonour cases.

"The common themes in such representations are delay tactics by unscrupulous drawers of dishonoured cheques, relatively easy filing of appeals and obtaining stay on proceedings," they said.

A payee of a dishonoured cheque has to spend considerable time and resources in court proceedings to realise money due to him.

The amendment is in line with the government's push to make India a less cash economy.

It is to be mentioned here that cheques are an integral part of the payments landscape, and form the backbone of trade and commerce, by being negotiable instruments.