The Negotiable Instruments Act was amended in 2002 making bouncing of a cheque a criminal offence.
Until then, not many organisations or people were prepared to accept cheques as payment. This is because being a civil offence it was a Herculean task to get payment. The amendment was justly hailed but today after a dozen years matters have not significantly improved as there are currently over 4 million cases in the courts on dishonour of cheques, and it continues to take years for their disposal.
The amendment was based on the premise that if an individual issued a cheque in payment of goods and services without sufficient balance in his account, his intent was to defraud the recipient and it was therefore a criminal act. That is logical.
The problem lay in the procedure that followed. If a cheque bounced, the person receiving the cheque had to write to the drawer within 30 days of knowing that the cheque had been returned unpaid and inform him that if payment was not made with 15 days he would file criminal proceedings under Section 138 of the Negotiable Instruments Act. In addition, the cheque had to be in payment of goods and services and presented for payment during its validity (earlier six months and now 90 days). If someone gave a cheque out of love and affection and the cheque bounced, the drawer could not be held criminally liable. The procedure to be followed, including the wording of the notices had to be very clear for action to be taken.
A fortnight ago the Supreme Court has made it a little more difficult. Until now, the aggrieved person could file a case at his place of residence or business. A three-member bench of the Supreme Court has now ruled in K Bhaskaran versus Shankaran Vaidhyan Balan that in cheque bouncing incidents, cases can only be filed in those courts within whose jurisdiction the drawee bank is situated. Thus, if ABC Company in Tuticorin receives a cheque drawn on a bank in Dibrugarh, Assam, ABC Company would have to file the case in Dibrugarh – not easy for the company in Tuticorin. This will naturally not only result in delays but huge expense as ABC would have to engage lawyers in Assam and even have someone travel to Dibrugarh.
To add to the woes of those seeking redress, the judgement would apply retrospectively. Therefore hundreds of thousands of cases would be transferred to different states.
The justification in the judgement is, "It is also now manifest that traders and businessmen have become reckless and incautious in extending credit where they would heretofore have been extremely hesitant, solely because of the availability of redress by criminal proceedings…Today's reality is that every magistracy is inundated with prosecutions under Section 138 of the NI Act, so much so that the burden is becoming unbearable and detrimental to the disposal of other equally pressing litigation," This is not a solution. Just because there are several cases pending, it is not necessary to make it even more difficult. As in the above example, ABC may not file the case in Dibrugarh if the amount due is less than what it would cost the company to pursue the case.
The alternative given to the recipient of the cheque is to file a case under Section 420 (cheating) at the place of his residence or where he ordinarily carries out business. This is not the same thing.
I believe this judgement is the death knell of Section 138 and an acceptance of the judiciary that it cannot speedily dispose of cases as the 2002 amendment intended.
The writer is MD, Cortlandt Rand Consultancy and an author
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