When a check written by an individual or organization cannot be honored or paid by the bank on which it is drawn, it is referred to as a bounced check or a dishonored check. This often happens when there is insufficient money in the bank account of the person or organization issuing the check to cover the amount written there. Cheque bouncing is a serious financial problem in India and has recently undergone significant legal changes. This article examines the effects of the recent legal modifications to India's check-bouncing laws on businesses, people, and the wider financial system. This article examines the causes of check bouncing, the laws governing it, and the most recent changes made to try to stop this practice in order to give readers a thorough grasp of the topic. To address occurrences of bounced checks, the government introduced a new law in 2018 called the Negotiable Instruments (Amendment) Act. The Negotiable Instruments Act 1881, is a crucial legal framework in India for dealing with dishonored cheques. It establishes rules and procedures for negotiable instruments, including cheques, and outlines the rights and obligations of the parties involved. The Act aims to ensure fair treatment, protect payee rights, and maintain financial transaction integrity. English law is mostly followed, except where necessary for the Indian context.
In its historic decision in Dashrath Rupsingh Rathore v. State of Maharashtra, the Supreme Court of India modified the provisions of Section 138 of the Negotiable Instruments Act to allow for the prosecution of someone who produced a check that bounced due to insufficient money. The holders of bouncing checks were given relief by the SC through this ruling under the terms of the Negotiable Instruments Act of 1881. Cheque dishonor is a violation of Section 138 of the NI Act, with the drawee bank's return constituting the only infraction. When notices are delivered to a bank where the payee has an account or are addressed to them, harassment may take place. The location of the complaint has no bearing on the payee's ability to file a FIR with the police or a magistrate. This NI Act has repeatedly been modified/altered to strengthen the penalties for dishonoring checks against the drawers (payer of the money) who engage in dishonest behavior and take advantage of their position. In spite of the legislative and judicial efforts to stop this abuse, the drawers (the ones who paid the money) continued to harass the payee (the one who received the check) and delay the court procedures (against them). They did this by appealing the court decisions. The payee found that the entire procedure of trying to acquire the proper payment was a very time-consuming, difficult, and tedious one. The finance minister presented the Negotiable Instruments (Amendment) Bill 2017 to the Lok Sabha in January 2018 in light of the difficulties the payee was experiencing. The Negotiable Instruments (Amendment) Act 2018 was signed into law on August 2, 2018, after receiving presidential approval.
The government recently implemented important legal amendments in order to solve these problems and improve the effectiveness of cases involving bounced checks. Two new provisions—S. 143A (Power to provide for temporary compensation to the complainant) and S. 148 (Power of appellate court to mandate payment pending appeal against conviction)—that have been added to the NI Act as a result of the aforementioned revision are among the most significant changes. These changes have been made to expedite the process of providing relief to the aggrieved payee and to include new measures that would offer the payee of the bounced check interim compensation.
The following are the modifications brought about by the aforementioned amendments:
- Section 143A interim remuneration for the complainant
- Probationary Compensation: This new law gives the courts the authority to require the bearer of the check to give the plaintiff interim damages.
- Court order: If the drawer of the cheque enters a not guilty plea to the accusations in the complaint, in a summary trial or summons case, the court must issue an order directing the drawer to pay the compensation. In any other situation, payment must be demanded once the charges are laid.
- Compensation Amount: The cheque's drawer must pay no more than 20% of the amount of the returned check as compensation.
- Drawer is Acquitted: Should the Drawer be found not guilty or acquitted, the payee may also be required to return the interim award to the Drawer along with the accrued interest (at the applicable RBI interest rate).5. Interim Compensation Payment Deadline: The interim compensation must be made within 60 days after the court's order date. If the Court is convinced that there are good grounds for the delay, this time frame may be extended by another 30 days.
- Section 148: Payment Pending the Appeal Against Conviction
- Appellant Deposit: In accordance with this new section, the appellate court has the authority to require the appellant to deposit a sum in addition to the sum already paid by the appellant pursuant to Section 143A.
- Compensation Amount: The amount that the appeal court orders shall be at least 20% of the fine or compensation that the trial or lower court awarded or must be paid.
- Deposit May Be Released to Complainant: During the pendency of the appeal, the appellant may, by order, relieve the complainant from the deposit.
- Appellant is Acquitted: If the Appellant is found not guilty, the Court must order the Complainant to return the whole Deposit Amount and to Pay Interest at the Current Rate Set by the RBI.
- Deposit Amount Due Date: The amount due must be paid within 60 days beginning with the date that the court issued its ruling. If the Court is convinced that there are good grounds for the delay, this time frame may be extended by another 30 days.
Recent legal modifications in India involving incidents of checks that bounce have a big impact on both enterprises and people. The promise of rapid case settlement, with measures targeted at resolving disagreements within a short six-month timeframe, is one of the most prominent effects, giving impacted parties much-needed relief. Additionally, the law's flexibility, which permits complaints to be filed either where the complaint's bank branch is situated, or where the cheque was issued, gives individuals concerned more convenience. It is anticipated that the provision for compounding offenses will lighten the load on the courts and speed up the resolution of legal disputes. Furthermore, the law's provision for harsher punishments for persistent offenders’ acts as a potent deterrent with the ultimate goal of lowering the frequency of check bounce instances in the long run. All of these reforms aim to speed up the legal procedure, safeguard the rights of both payers and payees and improve the effectiveness of financial transactions in India. The Negotiable Instruments Act, 1881, Section 143-A, and its provisions can only be used or invoked in cases where the offense under Section 138 of the Act was committed after the introduction of said Section 143-A to the statute book, the Hon'ble Supreme Court of India held in a significant judgment in G. J. Raja v. Tejraj Surana.
In India, check bounce incidents can be a serious issue for both businesses and individuals. The new law expedites the adjudication process and imposes harsher penalties for repeat offenders. To completely eliminate check bounce incidents, it is always advisable to take the appropriate steps. You may prevent check bounce incidents and make sure your transactions are simple and hassle-free by keeping an adequate balance, checking information, tracking checks, and using online payment methods. The recent changes to India's regulations governing bounced checks mark a significant advancement in addressing this chronic problem that affects both individuals and companies. With these modifications, cases should be resolved more quickly, complaints will be filed more easily, and repeat violators will face harsher punishments. The government hopes to help persons impacted by bounced checks quickly by adding measures like Section 143A and Section 148 to the Negotiable Instruments Act and increase the effectiveness of legal actions.
In addition to streamlining the legal procedure, these reforms also protect the rights of payers and payees, enhancing the security and openness of financial transactions in India. To completely avoid check bouncing situations, people and organizations must also take preventive actions, such as keeping enough balances and implementing electronic payment methods. All parties involved in check transactions will ultimately profit from these legal changes, which mark a significant step towards a more dependable and effective financial system in India.