Banks can’t file multiple cases against cheque defaulters

In an attempt to lessen the troubles faced by loan defaulters who are made to face multiple prosecutions for recovery of money in different courts, the Supreme Court (SC) has prohibited banks or financial institutions from resorting to this practice.

Banks will be penalised if they don’t follow the SC order.
While filing a case under the Negotiable Instruments Act (NIA) for recovery of the loan amount or against the dishonoured cheque, a bank has to file an affidavit that it hasn’t filed a similar complaint against the defaulter in any other court.

Underscoring the need for inculcating faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments, a bench of Chief Justice KG Balakrishnan and justices P Sathasivam and JM Panchal passed a lot of directives in this regard.

There are at least 38 lakh cases relating to dishonoured cheques pending in courts. The courts are already burdened with 3.5 crore civil and criminal cases that are waiting a verdict for years.

While 5 lakh cases under the NIA are pending in Delhi, Maharashtra has a backlog of 7 lakh cases.

Attorney general Goolam E Vahanvati, who helped the court draw up the guidelines, said the interests of justice would be better served if parties go for multiple petitions at an early stage of a case. The parties can’t do the same after getting involved in protracted litigation in various courts.

Accepting Vahanvati’s suggestions, the bench said the trial court must tell an accused that he could make an application for compounding of the offences at the first or second hearing of the case. If he files such an application, compounding may be allowed by the court without imposing any costs on the accused defaulter.

If a defaulter makes the plea for compounding after second instance, the magistrate can impose 10% costs of the amount involved and that money would be deposited with legal services authority or the court concerned.

The 10% fine will go up to 15% if the plea to compound cases reaches higher courts. It will become 20% when the same plea is made before the apex court.

The directions have become necessary in view of the increasing number of cheque bounce cases and also due to the fact that the law doesn’t suggest the stage at which cases can be compounded.

Even though the imposition of costs by the court is a matter of discretion, the scale of costs has been suggested in the interest of uniformity, the court said.

The court concerned can reduce the costs while recording the facts and circumstances of the case. However, bona fide litigants who have genuine grievance against the bank can peruse the case.