Introduction
A cheque is a means of trade that facilitates cashless transactions in the economy. The usage of tests as a form of trade has grown over time. People tend to offer cheque in purchases instead of holding currencies. Delivery of currencies, especially when the amount is too large, is a risky business. Because the cheque is merely paper provided by the bank authority to make purchases, it thus is a comfortable way to carry out transactions because the risks of fraud or robbery are minimized.
When the payee collects the said sum by making a cheque in front of the bank, the payment is said to have been paid by the bank. If the bank refuses to pay the amount in exchange for the cheque, the cheque is said to have been disheartened by the bank. Dishonoring the cheque or the cheque bounce is when the ‘payee,’ i.e. the person who is to receive the payment via the cheque, fails to meet the bank’s requirements, i.e. when there is not enough money in the bank or when the amount indicated in the cheque exceeds the amount of money present in the bank.
Chapter XVII in, Public Financial Institutions and Negotiable Instruments (Amendment) Act, 1988 (66 of 1988) was introduced into the Act dealing with the dishonoring of cheques or the bounce of cheques.
Cheque
A cheque is a document that orders a bank to pay or move a certain sum of money, as indicated on the cheque, from the account of the person giving the cheque to the person whose name the cheque bears.
Section 6 of the Negotiable Instruments Act, 1881 describes the cheque as a bill of exchange drawn from a specified banker and not payable unless demanded. The cheque contains the electronic image of the truncated cheque and the electronic version of the cheque.
- ‘Cheque in electronic form’ refers to the exact mirror image of the paper cheque that is produced, written, and signed securely. The digital signature, either with or without a biometric signature and an asymmetric cryptosystem, maintains minimum safety requirements.
- ‘Cheque truncation’ refers to a cheque clearance method where a physical paper cheque is transformed by digitization into an electronic type. It’s done to send the cheque back to the paying bank.
Negotiable Instrument Act, 1861
Section 138 of the Act applies to the criminal responsibility as well as the civil liability applied to the cheque, where the drawer draws a check for the payment of the debt or obligation in full or in part, and the cheque is dishonored by the bank when it is issued. In a case where the check is rejected, the bank of the drawee shall send a ‘Cheque Return Memo’ to the banker of the drawee explaining the reason for the non-payment.
The drawee’s banker then gives the dishonored cheque and the memo to the drawee. It is also on the drawee to re-submit the cheque within a span of three months from the date on which it is submitted, if it assumes that it should be re-submitted if it is presented for the second time. And if the cheque bounces, the manager has the right to sue the manager.
The purpose behind Section 138 of the Act is that, when a cheque drawer which has no intention of making a payment draws a cheque and bounces, the act is punished. In addition to civil liability, criminal responsibility is also enforced by section 138 of the Act in the case of an unscrupulous cheque box.
As far as criminal law is concerned, the commission of a crime is one thing and conviction is another. The commission of an offense is regulated by Section 138 of the Act, while the prosecution is regulated by Section 142 of the Act.
The elements of the offenses referred to in Section 138 are:
- The cheque taken by the accused shall be on the account held by him with the banker;
- The value of the cheque is to be paid out of the debt or liability;
- The cheque is returned unpaid due to a lack of funds or the sum that exceeds the deal reached with the bank at the very moment the check is returned unpaid.
The drawee will give a note within 30 days from the date of receipt of the “Cheque Return Memo” from the bank. The content of the notification will state that the balance of the cheque must be paid to the payee within 15 days from the date of receipt of the payment by the drawer. If the sender returns the notice as unclaimed, the start date shall be deemed to be 15 days in that case[1]. The violation shall be considered to have occurred if the drawer refuses to make a satisfactory payment within 15 days of receipt of the notice and the drawee has the right to file a criminal complaint.
According to clause (b) of Section 142 of the Negotiable Instruments Act, 1881, if a petition is recorded under Section 138 of the Act, it should have been lodged within one month of the expiry of those 15 days. However, the court has the discretion to dismiss the delay if the complainant makes a compelling case for such a delay.
Amendments to the Negotiable Instrument Act[2]
The amendments to the Act are as follows:
- In the first instance, the cheque drawer shall pay the plaintiff a temporary fee in a summary trial or summons case. This is valid even though the drawer pleads not guilty to the charges. Compensation can not exceed 20% of the value of the cheque.
- Second, all interim payments shall be received within 60 days from the date of the request. In certain cases, with the discretion of the judge, a maximum extension of thirty days can be given.
- Thirdly, in cases where the cheque drawer is discharged, the claimant must repay the drawer with interest on the interim compensation.
The purpose behind these amendments is to add clarity to the existing provisions set out in Sections 143 to 147, which could enable the courts to offer a speedy trial along with a provisional refund of 20% of the search sum as a partial refund. It is a significant step towards the recovery of the sum of the bounced cheque, taking into account the number of pending cases of the bounced cheque in India.
Under the Negotiable Instruments Act, 1881, once the case has been brought before the court, a time limit would be given to the parties to settle the matter outside the court, failing which the defaulter would be sent to prison, and conditions would be imposed on him if the bail had been granted. In the introduction of a new rule, the defaulting party always has a right to defend itself until the amount has been deposited in court.
Conclusion
This should be assumed that the cheque bounce can be regarded as both a civil and a criminal offense and that such action should be taken to the relevant courts or police stations where the cause of the crime occurs and that is not in violation of the law of double jeopardy. While the Negotiable Act of 1881 does not state that a petition must be filed at the police department, but in some cases where there is a presumption of criminal conduct with the civil suit than in this case, the case can be taken to the police station where the cause of the action has arisen.
Besides, the revised sections 143 A and 148 would add protection to the current provisions of Sections 143 to 147, which in turn deviate from the rules of the Code of Criminal Procedure and the Evidence Act. The impression provided by Sections 143 and 143A of the Act is that the claimant may urge the court to provide for a speedy trial and to grant an interim refund of 20% of the sum of the cheque as a partial refund. If the case is appealed under Section 148, the Appellate Court may require that at least 20% of the amount awarded be deposited with the plaintiff.
The cheque bounce case had seen an immense increase in the number of cases before the courts, as reported by the Supreme Court of India. However, after the amendments introduced in 2015 and 2018, which vowed to settle claims as quickly as possible and also to ensure that victims seek compensation, transparency in the system has been achieved by stopping people from defaulting on their payments. As a result, the process under Section 138 has helped encourage commercial transactions, as people now feel safer. This has also helped to keep up with the new banking system.
[1] K. Bhaskaran v. Sankaran Vaidhyan Balan, (2000) 99 Comp Cas 268.
[2] Negotiable Instruments (Amendment) Act, 2018, http://egazette.nic.in/WriteReadData/2018/188048.pdf.
This article is authored by Anisha Bhandari, 2nd Year, B.A. LL.B(Hons), student at Institute of Law, Nirma Univeristy.
Also Read – How Many Times A Cheque Can Be Bounced?
