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New Laws for Cheque Bounce in India

हिंदी में पढ़ें
January 30, 2024
By Advocate Chikirsha Mohanty



Table of Contents

  1. What are the changes/amendments in the cheque bounce law?
  2. RBI Guidelines Applicable Since August 2021
  3. What are the changes in the cheque bounce law aimed at?
  4. Advantages of the changes in the cheque bounce law
  5. Cheque Bounce Latest Judgement 2022
  6. Supreme Court Comes To Rescue Of Party Who Filed Cheque Bounce Case In Wrong Court After Noting He Got Incorrect Legal Advice
  7. Why do you need a lawyer for a cheque bounce case?

Negotiable Instruments (NI) Act was enacted in 1881 to govern the provisions relating to negotiable instruments like Promissory Notes, Bills of Exchange, and Cheques. The most widely used (and abused) provision in the Negotiable Instruments Act is Section 138 dealing with cheque bounce or dishonor of cheques. This NI Act has been amended/altered time and again to make the law relating to dishonor of cheques even more stringent against the drawers (payer of the money) of the cheque, who indulge in fraudulent practices, thus abusing their position.

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Despite such efforts of the legislature and the judiciary to curb this abuse, the drawers (payer of the money) were still succeeding in their efforts to delay the court proceedings (against him/her) in addition to harassing the payee (receiver of the cheque) by appealing against the court orders. The entire course of attempting to get the rightful payment itself turned out to be an extremely tedious, lengthy, and cumbersome process for the payee.

Considering the problems faced by the payee, the Negotiable Instruments (Amendment) Bill 2017 was put before the Lok Sabha by the Finance Minister in January 2018. The Bill received the assent of the President of the country and became an Act on 02.08.2018, called the Negotiable Instruments (Amendment) Act 2018.
 



What are the changes/amendments in the cheque bounce law?

Two new provisions by way of S. 143A (Power to provide for interim compensation to the complainant) and S. 148 (Power of appellate court to order payment pending appeal against conviction), have been incorporated into the NI Act after the said amendment. These modifications have been made to shorten the process of granting relief to the aggrieved payee and to insert additional provisions to provide interim compensation to the payee of the bounced cheque.

Consult:  Top Cheque Bounce Lawyers in India 

The following are the changes that were introduced by the said amendments:
 

A.   Interim Compensation to the Complainant – Section 143A


1. Interim Compensation: Under this new section, the Courts have the power to order the drawer of the cheque to pay interim compensation to the complainant.

2. Order by the Court: The compensation has to be ordered by the Court to be paid by the drawer of the cheque, where the drawer pleads not guilty to the allegations made in the complaint, in a summary trial or summons case. In any other case, compensation has to be ordered upon the framing of the charges.

3. Amount of Compensation: The compensation to be paid by the drawer of the cheque should not be more than 20% of the amount of the bounced cheque.

4. If the Drawer is Acquitted: When and if the drawer is acquitted/held not guilty, then the payee may also be ordered to refund to the drawer, the interim compensation along with the amount of interest (at RBI’s prevailing interest rate).\

5. Time Frame to Pay Interim Compensation: 
It should be paid within 60 days, starting from the date of the order by the Court. This period can be extended by another 30 days if sufficient reasons for delay can be shown to the Court.

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B.    Payment Pending the Appeal against Conviction – Section 148

 

1. Deposit of Amount by Appellant: Under this new section, the Appellate Court has the power to order the appellant to deposit an amount which shall be in addition to the amount already paid by the appellant by way of Section 143A.

2. Amount of Compensation: The amount ordered by the appellate court should be a minimum of 20% of the compensation or fine which was awarded/ordered to be paid by the trial/lower court.

3. Deposit may be Released to Complainant: This deposit by the appellant can be released to the complainant by an order, during the pendency of the appeal.

4. If the Appellant is Acquitted: In case the appellant is acquitted, the Court has to direct the complainant to refund the entire deposit amount and in addition to that, he/she shall also pay interest at RBI’s prevailing interest rate.

5. Time Frame to Deposit Amount: It should be paid within 60 days, starting from the date of the order by the Court. This period can be extended by another 30 days if sufficient reasons for delay can be shown to the Court.



RBI Guidelines Applicable Since August 2021

  1. Swift Cheque Clearance: The recent RBI circular, mandates the clearance of cheques within 24 hours of their presentation at banks. Unlike the previous practice, the current changes in calculation methods for clearance times no longer exclude holidays and weekends. This impacts businesses and employees who face delays in getting their salaries when month-ends fall on weekends. Therefore, people who give post-dated cheques with plans to deposit enough money later should remember the 24-hour clearing system.

  2. Positive Pay System (PPS): The RBI has introduced a new system called the Positive Pay System (PPS), which requires confirmation for cheques exceeding the threshold of 50,000 INR. Cheques with lower amounts can still be processed through automated systems, but those surpassing this limit necessitate additional scrutiny to mitigate the risk of fraudulent and unauthorized transactions.

Consult:  Top Cheque Bounce Lawyers in India 



What are the changes in the cheque bounce law aimed at?

The Negotiable Instrument (Amendment) Act has been enacted to address the issue of undue delay in resolving cheque bounce matters to ensure and provide relief to the payees of the dishonored cheques and to discourage unnecessary litigation. If the process is sped up, it would without a doubt save time and money. The amendments have been introduced to strengthen the credibility of the cheques and to cope with the modern banking system in India. The aim is to aid the trade and commerce in the country by allowing financial/lending institutions (such as banks) to continue financing the productive sectors of the economy.   

The new law aims at speedy disposal of the pending cases under the Act and provides for interim compensation to the payee, who filed a complaint against the drawer for non-payment of the amount of the cheque.

Recently it has also been held by the Supreme Court that Section 148 (as added by the Amendment Act) will also be applicable to appeals against the order of convictions under Section 138 even in those cases where the criminal complaints for the offense of cheque bounce were filed before September 1, 2018 – thus giving it retrospective effect.

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Advantages of the changes in the cheque bounce law

The new Amendment Act is expected to come as a relief for the Payee (Complainant) of the Cheque who spends copious amounts of time, energy, and money in order to recover the amount which is rightfully his/hers. Due to the addition of the aforesaid provisions, the payee will get the compensation/amount much faster than before and this will also aid in reducing the huge number of cheque bounce matters that the Courts are burdened with.

The changes in cheque bounce laws are advantageous not only for the payee but also for the drawer of the cheque. Sometimes there are false implications made by the payee against the drawer, in such conditions if the drawer is acquitted and no case was found against him, then under section 148 of this Act, the court can order the payee to repay the amount of compensation with interest which was awarded by the trial court. This provision of repayment of compensation will provide relief to the genuine party. The changes are advantageous as they are likely to strengthen the credibility of issued cheques. 

The recovery provisions are being strengthened so that the businesses are relieved and safeguarded from excessive hardship.



Cheque Bounce Latest Judgement 2022

In court, the key factor is who can present stronger evidence to support their case. The court does not actively investigate; it relies on the evidence presented during disputes. The concept of burden of proof was recently clarified in a Supreme Court judgment on a cheque bounce case, and its key points are outlined below:

  • Sumeti Vij vs Paramount Tech Fab Industries (2021) (1) TVT 445 SC

In the Sumeti Vij vs. Paramount Tech Fab Industries case, the Supreme Court ruled that when someone presents a cheque issued by another person for consideration, a presumption of consideration applies under section 138 of the Negotiable Instrument Act, 1881. Accordingly, the prosecution must prove that a cheque was dishonored, showing an unpaid debt cleared by cheque payment. Once proven, the accused must provide evidence of cancellation or non-payment to avoid liability for fraud or related civil wrongdoings.

In this case, the ruling clarifies that if not all key elements proving check dishonor are definitively established, the accused can be presumed guilty under section 138 of the NI Act based on filed evidence. The burden of proving innocence rests with the accused unless proven otherwise through mediation or affirmative defense. This decision in Sumeti Vij vs Paramount Tech Fab Industries (2021) serves as a significant precedent for future cases involving similar allegations.
 

Facts of the Case

 

The accused lady contacted the complainant to deliver non-woven fabric to her factory at a specified address. She gave two cheques, each exceeding 5 lakhs in value, to the complainant. However, both cheques were dishonored by the banks due to insufficient funds. The complainant sent legal notices about the unpaid amounts, followed by a complaint under Section 138 of the NI Act, 1881. The complainant presented relevant documents, including the bounced cheques and dishonor memos, while the accused lady failed to provide any evidence to support her claim.
The trial court favored the accused because the complainant could not prove the debt beyond doubt as required by Section 139 of the NI Act, 1881. But the High Court overturned this decision, saying the prosecution had provided all the necessary evidence.

Thus, the burden of proving shifted to the accused and the same must now prove they are not liable for the cheques and provide information about their whereabouts. The Supreme Court upheld the High Court's decision and dismissed the accused's appeal.

  • M/s TRL Krosaki Refractories Ltd. vs M/s SMS Asia Private Limited & Anr. (2022) Crl 270

In the case of M/s TRL Krosaki Refractories Ltd. vs M/s SMS Asia Private Limited & Anr. (2022) Crl 270, the Supreme Court ruled that an authorized employee can represent a company as the complainant or payee in court. This allows companies to take legal action without procedural hindrances. The key requirement is to show the complaint is filed on behalf of the company and the person prosecuting it has proper authorization and knowledge of its contents.

According to this ruling, you can use an official document or letter of authority as evidence if needed. This decision clarifies who can represent a legal entity in proceedings, making it simpler for companies to seek justice without complex procedures. It ensures consistency across India's various jurisdictions and simplifies future company settlements.
 

Facts of the Case

 

In this case, multiple checks were made out to the company. However, when these checks, totaling Rs 1 Crore 10 lakhs, were presented to the banks for payment, they were declined due to an 'Account closure' notice. The accused contested a Section 138 NI Act, 1881 complaint filed by the company's General Manager (Accounting). They questioned the legitimacy of the process under Section 142 of the NI Act, 1881, which outlines rules for cheque bounce complaints, including who can initiate them. The accused's primary argument was that the General Manager lacked the authority to act on behalf of the company according to the law.

However, the complainant provided documents showing that the Managing Director authorized the General Manager (Accounting) to take action, with attested signatures. The apex court rejected the High Court of Cuttack's order in favor of the accused, supporting the General Manager's stance.

Consult:  Top Cheque Bounce Lawyers in India 



Supreme Court Comes To Rescue Of Party Who Filed Cheque Bounce Case In Wrong Court After Noting He Got Incorrect Legal Advice

The case of Bijoy Shankar Mishra vs Sourav Ghosh was initially filed before the Judicial Magistrate First Class (JMFC) in 2016 by the appellant, Bijoy Shankar Mishra. The case pertained to dishonoured cheques totalling 45 lakhs. After four long years, when the trial reached the final argument stage, the court concluded that it lacked territorial jurisdiction and discharged the respondent, Sourav Ghosh. Interestingly, the appellant could not address the jurisdictional issue in the High Court, but the Supreme Court of India recognized this error and the appellant's injustice. To fix it, the Court utilized its Constitutional powers, Article 142 of the Indian Constitution and Section 406 of the Code.

The Supreme Court criticized the JMFC for issuing an order without considering the legal implications and the fact that the trial had been ongoing for over four years without any objection to territorial jurisdiction until the final arguments. The Court acknowledged a lapse in providing adequate legal guidance to the appellant and expressed concern that the appellant should not be disadvantaged due to this deficiency. The Supreme Court emphasized that procedural defects and irregularities should never stand in the way of substantial justice. It observed that procedural defect or lapse had a remedy and was not substantial as to constitute a lack of subject-matter jurisdiction.

This case underscores the importance of proper legal assistance and procedural correctness. It highlights that technical defects and irregularities should never stand in the way of substantial justice. The Supreme Court’s intervention in transferring the case to an appropriate court using its powers under Article 142 of the Constitution and Section 406 of the Code reaffirms this principle. The judgment also emphasizes that procedural lapses have remedies and are not substantial as to constitute a lack of subject-matter jurisdiction.

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Why do you need a lawyer for a cheque bounce case?

Cheque bounces can attract possible criminal charges. Hiring a cheque bounce lawyer to file or defend a cheque bounce case is one way you can ensure that you are on the right path in your cheque bounce journey. While the lawyer will need to gather information from you regarding the case, he or she will also take care of all the paperwork, allowing you more time to take care of your business and other priorities. An experienced attorney can give you expert advice on how to handle your cheque bounce case owing to his years of experience in handling such cases. A cheque bounce lawyer is an expert on the laws and can help you avoid significant mistakes that may cause financial or legal harm, which may require future legal proceedings to correct. A lawyer would also ensure you are directed on the right path regarding which kind of case to opt for. Thus, by hiring an attorney a person can make sure that he and his interests are protected under the law. You can also use LawRato's Free Legal Advice service to get free advice on your legal issue from expert cheque bounce lawyers.



These guides are not legal advice, nor a substitute for a lawyer
These articles are provided freely as general guides. While we do our best to make sure these guides are helpful, we do not give any guarantee that they are accurate or appropriate to your situation, or take any responsibility for any loss their use might cause you. Do not rely on information provided here without seeking experienced legal advice first. If in doubt, please always consult a lawyer.


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Comments by Users


George
Cheque bounced in 2011 Company closed in March 2015 by order of High Court Are Directors liable of closed company?

Reply by LawRato
Directors can only be held liable if on the date of issuance of cheque, such director was in-charge of and responsible for the conduct of the day-to-day affairs of the company. 

Saifuddin Aziz Nawab
Very Very Informative Guide Lines SIR Thanks

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