How effective are the Cheque bouncing provisions under negotiable instruments act, 1881?

How effective are the Cheque bouncing provisions under negotiable instruments act, 1881? Introduction: Section 138 to 147 were incorporated in Negotiable Instruments Act, 1881(NI Act) with a view to promote the efficacy of the banking operations and to enhance the credibility of the cheques in business transactions. The NI Act makes the drawer of cheque liable for penalties in case of dishonour of cheques due to insufficiency of funds or for the reason that it exceeds the arrangements made by the drawer. The NI Act also contains sufficient safe guards to protect the drawer of cheques by giving him an opportunity to make good the payment of dishonoured Cheque when a demand is made by the payee. This Article analysis’s the effectiveness or lack of effectiveness of the cheque bouncing provisions. Scheme of NI Act with regard to cheque bouncing Before we get into the main topic, it is necessary to refer to the relevant provisions relating Offence and procedure for filing of complaint under Section 138 of the N I Act. When an offence under the Act is deemed to have been committed An offence under the NI Act shall be deemed to have been committed, if the following conditions are satisfied (Section 138): • Cheque must have been drawn by a person(the drawer) in favour of a payee on his bank account for making payment • Such payment must be either in whole or partial discharge of a legally enforceable debt • Cheque must have been returned by the Banker to the payee or holder in due course due to insufficient balance in the account of the drawer or it exceeds the arrangement he had with the bank, Proviso requires fulfillment following additional conditions • Cheque must be presented within a period of 6 months from the date of cheque or its validity period which ever is earlier. (Cheque validity period is now reduced to 3 months) • The payee or holder in due course must demand payment of the cheque amount by written notice within 15 days of receipt of notice • Such notice must be issued within 30 days from the date of receipt of intimation of dishonour from bank and • The drawer of cheque fails to pay demanded sum within 15 days from the date of receipt of the notice Presumption in favour of holder There is a presumption in favour of the holder of cheque that he received the cheque in discharge of a legally enforceable whole debt or part of the debt, Unless contrary is proved, (Section 139). When cause of action arises for filing a complaint? Once the drawer fails to make payment within 15 days from the date of receipt of notice from the payee, the cause of action arises for filing a complaint on expiry of notice period period. The complaint has to be filed within 30 days from the date of cause of action and in the relevant court of Metropolitan Magistrate or Judicial Magistrate having jurisdiction. Recently the Supreme court in the case of MSR Leathers V S planniappan & Anr, reversed its earlier judgment in Sadanandan Bhadran v. Madhavan Sunil Kumara and held that a payee or holder of a cheque can now issue a statutory notice to the drawer each time the cheque is dishonoured and institute proceedings on the basis of a second or successive statutory notice as well. Section 142 of Act mandates that no court shall take cognizance of the offence unless a complaint in writing is given by the payee or holder in due course as the case may be and such complaint has to be made within one month from the date of cause of action. Amendments to NI Act Now let us examine how the amendments made to NI Act with the insertion of Sections 143 to 147(effective from 06.02.2003) brought strength to deal with certain deficiencies noticed in the Act. Salient features of amendments are as follows:- • Time limit for issuance of notice: It increased the time limit for issuance of notice for demanding payment of dishonoured cheque amount from 15 days to 30 days from the date of receipt of banker’s Memo of dishonour.(Section 138} • Punishment term: Imprisonment term has been extended up to 2 years in place of one year. similarly fine can be levied up to twice the amount of the cheque dishonoured {Section 138} • Mode of service of summons: Approved serving of summons by post/courier approved by session’s court for speedy trial/ prosecution. In case of refusal to receive summon, it shall be deemed to have been duly served on certification by the authorized person of postal dept or courier for this purpose{Section 144} • Evidence on affidavit: Evidence of complainant may be given by him by way of an affidavit and such an evidence can be a basis for issuance of summons. A discretion has been given to court to accept affidavit on evidence and only on request of the accused summon. {Section 145} • Bankers Memo as evidence: Allowed acceptance of Bankers memo of dishonour as prima facie evidence {Section 146} • Compounding of offence: Another notable feature is that Section 147 provides for compounding of the offence which means an escape route is provided for avoiding imprisonment even during the trial. It is evident from the above amendments that the main thrust of these amendments was to provide for a speedy and time bound trial. Courts have been given power to try the offence by summary trial for expeditious disposal of 138 cases and Section 143 states that endeavor shall be made to complete the trial within 6 months from the date of the complaint. How effective is the NI Act after these amendments? Despite existence of well framed law on paper, why the number of pending cases u/s 138 is quite alarming. Let us now look for the possible causes for delay in 138 cases which can be avoided or improved for better result.It is very disappointing to note that cheque bouncing cases are taking at least 3- 5 years just like a civil suit for recovery of money. Thus the very purpose of the NIAct is defeated by the slow process. 1. Recently it is reported in a news paper that about 30% of pending in the country are relatable to NI act cases and violations under MV act which is a cause for huge concern. This is an indicator of the state of affairs. One of the reasons is less number of judicial magistrates in comparison to the increasing number of 138 cases. 2. Banks have been offering loans more liberally and collect post dated cheques in advance and in many of the cases the judgment of the financial capacity is wrong or in their endeavor is to reach targets for loans disbursal 3. In many of the courts, Magistrates are caught in dilemma about as to whether CRPC is to be followed or special provisions of NI act to are to be followed. A discretion has been given to the courts and every magistrate has to exercise such power judiciously. 4. It is noticed that some of the courts still follow the archaic system of for serving of summons which takes at least 6 months while the upper time limit of 6 months is specified for disposal. E-mails /Fax/fast courier are not used for serving of summons and In many cases, the accused manages with the post department dak server and returns the summon resulting in serving of summons second time. 5. Adjournments are granted liberally and no efforts are made to complete evidence and cross examination on the same day. This is the usual practice adopted by the advocate of the accused for mutual benefit. What is the way forward ? Newly inserted provisions of the Act would be rendered nugatory if complaints filed under Section 138 of the Act are not disposed of expeditiously. The judicial system itself is portrayed in poor light, when Section138 cases take 3 to five years before they are finally adjudicated by the Magistrate. • There should be fast track courts to deal exclusively 138 cases. • Number of unfilled vacancies of posts of Magistrates must be kept to the minimum. • The Courts have to be strict in not allowing adjournments to the accused and endeavor should be made to dispose off cases within 6 months from the date of complaint or a maximum period of one year. • Appeals should not be allowed unless the accused gives valid reasons or brings out deficiencies in judgment of lower court. • Frivolous appeals should be dismissed as sufficient safeguards exist to take care of interests of accused. Once fine levied or imprisonment should not be reduced in appeals so that the punishment acts as deterrent. • Amendments should be made to empower Courts to direct accused for deposit of full amount of the cheque before the trial starts as it will compel accused to settle for compounding at the earliest. • Courts must adopt suitable and effective procedure to achieve the objective of the Act. Even the Supreme court in its recent judgments interpreted the provisions and reversed its earlier judgments to strengthen the faith in the NI act and it remarked that any narrow interpretation will benefit offenders and not the payee. Recent trend of Supreme court judgments In the case of Ms. Laxmi Dyechem Vs State of Gujarat & Ors leathers Vs Palaniappan division bench of Apex court set aside the verdict of Gujarat High Court which had held that criminal proceedings for dishonouring of cheque can be initiated only when the cheque is dishonoured because of lack of sufficient amount in the bank account and not in case where a cheque is returned due to mismatch of signature of account holder. In the case of MSR Leathers V S planniappan & Anr , the Apex court reversed its earlier judgment in Sadanandan Bhadran v. Madhavan Sunil Kumara (1998) 6 SCC 514 and held that a payee or holder of a cheque can now issue a statutory notice to the drawer each time the cheque is dishonoured and institute proceedings on the basis of a second or successive statutory notice as well. Conclusion: At a time when the Apex court and other courts have been passing landmark judgments to strengthen faith in cheques, the Inter Ministerial group’s suggestion for settlement of cheque bouncing cases out of court by invoking arbitration and conciliation, Lokadalats on the lines of section 89 of CPC comes as a shocker, Another big road block is likely to come. If suggestions of IMG, are accepted, it may result in going back to the days of filing of suits for recovery of money. Instead of this the Government aught to focus on improving the infrastructure facilities and efficacy of the courts which will facilitate expeditious disposal G. S. Rao Deputy General Manager(Legal) OCL India Limited Tags: Cheque bouncing, NI Act References: Judgments of Supreme court.