Bouncing Cheques Cases Mumbai The Bombay High Court Judgment that the drawer of a bounced cheque cannot be prosecuted if the instrument was issued only as a security has thrown traders into a tizzy. Suppliers who were used to granting credit for series of transactions against a single cheque are now unsure of how good this security is. Debtors on their part while issuing the cheque are making it in the covering letter that the cheque is being issued as a security and not to meet any debt obligation.

Lawyers feel that there is scope for misuse of the legislation from both sides. In the past, lenders have used the Act to initiate criminal prosecution against borrowers who have found it difficult to pay their installments. Now debtors are taking shelter under the judgment on cheques issued as security.

Also creditors at multiple levels, including banks and NBFCs, may be put to strict proof whether the cheque held by them is towards discharge of debt or held as a security. While on the other hand, the debtor or an issuer of cheque may abuse the process of law by building false defense taking shelter under the judgment.

An amendment to the Negotiable Instrument Act of 1881 was introduced more than a decade ago, which made cheque bouncing a criminal offence. There was requirement that the cheque should be issued to discharge a debt or obligation. This Act had given lenders immense clout with most of them insisting on a post-dated cheque for the full amount of the loan. In case of home and auto loans, lenders, in addition to seeking post-dated cheques for the monthly installments , take a security cheque for the entire loan amount. This allows them to bank the cheque and initiate criminal proceedings if the borrower fails to meet his monthly obligations. ( 13/3/ 2010 )

Supreme Court on settlement of cheque bounce

From now, delay in settlement of cheque bounce cases will cost the defaulter heavy, up to 20% of cheque amount.

The penalty for delayed settlement of the cheque amount, after conviction in the trial court, would rise steadily from 10% in the district courts, 15% in High Courts to a whopping 20% in the Supreme Court.

The SC on Monday took this radical step through a pioneering judgment which will curb the tendency among defaulters to sit over the amount tendered through a bounced cheque.

Saddled with 30 lakh cheque bounce cases, the SC accepted most of the suggestions given by attorney general G E Vahanvati. A Bench comprising chief justice K G Balakrishnan and Justice P Santhasivam and J M Panchal also laid down guidelines for early settlement in cheque dishonour cases under Section 138 of the Negotiable Instrument Act. The judgment, authored by CJI Balakrishnan, indicated that defaulters going for early settlement before the trial court would have to pay just the principal amount with applicable interest.

But if they approached the district court for settlement after being convicted by the trial court, they would have to pay 10% of the cheque amount to avoid going to jail. So if a cheque amount is for Rs 1 lakh, then to compound the offence before the district court, the defaulter has to pay an additional Rs. 10,000 to avoid going to jail.

Similarly, if the defaulter agrees for settlement and compounding of the offence at the HC stage, then he would have to pay 15% of the cheque amount which would increase to 20% if he moves the Supreme Court.

The amount so collected would be given to Legal Aid Authorities of the respective states which provide free legal assistance to poor litigants in various forums, the apex court said.

This judgment will go a long way in reducing the pendency of over 30 lakh cheque bounce cases in various courts across the country which has a jamming effect for the wheels of justice already slowed down by pendency of 2.7 crore cases.

Whether a cheque bounces due to insufficiency of fund in the bank account of the drawer, or whether he issues a ‘ stop payment ‘ order to the bank, the consequences under the Negotiable Instruments Act, would be the same, the Supreme Court held last week in the appeal, Rangappa vs Sri Mohan. Upholding the conviction of the drawer of the cheque, passed by the Karnataka high court, the Supreme Court further explained that when a cheque is issued, there is a presumption that it is to clear a debt or liability. The drawer of the cheque can, however, rebut the presumption. ” There can be no doubt that there is an initial presumption which favours the complaining person,” the judgment said. ( 17/05/2010) Cheque Bounce Law recover cheque bounce payment