Good news! Courts may now order interim relief in cheque bounce cases
Online transaction is catching up fast but sill Cheques are used in most of the transactions such as re-payment of loan, payment of salary, payment to creditors, fees, bills etc. A vast majority of cheques are processed and cleared by banks on daily basis.
Dishonour of Cheque
The average pendency of bounced cheque cases is almost four years in India. Cases of cheque bouncing has been increasing at an alarming rate, some media suggest anywhere around 38 lakhs or more cases of cheque bouncing have been filed with Indian courts under Section 138 of Negotiable Instrument Act,1881.
Dishonour of cheque means bouncing or returning. Cheque can be dishonour on account of following reasons:
- Insufficient funds- not sufficient balance in the account for making payment.
- Stale cheque- date of presentation of cheque is beyond the validity period of 3months.
- Post-dated cheque- date of presentation is one or more days earlier than the date of cheque.
- Mutilated cheque- damaged cheque
- Undated
- Signature Mismatch
What happens when cheque is bounced?
- Penalty levied on both drawer and payee by their respective banks.
- Negative impact on credit score.
Cheque is said to be bounced when it cannot be cleared by the bank for want of sufficient funds in account or various other reason including but not limited to over writing on the cheque, payment stopped by account holder, signature mismatch etc.
Section 138 of Negotiable Instrument Act, 1881
Dishonour of cheque for insufficiency of funds in account: Cheque drawn by any person for payment of debt or other liability, is returned by bank unpaid, because of insufficient amount lying in the bank account.
Penalty: As Section 138 of the Negotiable Instrument Act, the dishonour of cheque is a criminal offence and is punishable by imprisonment up to two years or with monetary penalty or with both.
Jurisdiction of Cheque Bounce Case
Dishonour of Cheque Cases can only be filed before the Court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment is situated.
Latest amendment in Negotiable Instrument Act
A welcome amendment to facilitate trade credit which is much bigger and important than bank credit.
- Received the assent of the President of India on the 2nd August 2018- Negotiable Instruments (Amendment) Act on July 23, 2018 by introducing new provision Section 143A, which gives power to court to order payment of interim compensation by drawer of the cheque.
- Quantum of interim compensation shall not exceed 20% of the amount of dishonoured cheque.
- Interim compensation is to be paid by drawer of cheque in summary trial or summon case.
- This compensation has to be paid within 60 days from the date of order plus court may grant extension of 30 days by court if sufficient cause being shown.
- In case drawer of cheque is acquitted or proved innocent, complainant has to repay the interim compensation along with interest within 60 days from court order.
This amendment will further the global business ranking in ease of doing business in India.
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