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06 Aug 2018

Interim Relief To Payees Of Dishonoured Cheques

Yet another attempt has been made by the legislative authorities to reduce the number of frivolous cases and expedite the disposal of cases on dishonour of cheques by amending the Negotiable Instruments Act, 1881 (“Act”) to provide interim relief to the genuine/bona-fide complaints. The amendment is an attempt to help trade and commerce in general by allowing lending institutions, including banks, to continue to extend financial support to the productive sectors of economy.

The Central Government had been receiving certain representations from public/traders with reference to commercial transactions and pendency of cheque bounce cases. The sanctity of a cheque may be questioned in case of delay tactics used by the drawers of cheques on account of ease of filing of appeals and obtaining stay on proceedings which results in spending considerable time and resources in court proceedings to realise the value of a cheque.

Any statute aims at speedy disposal of cases. Likewise, the legislative intent behind amending the Negotiable Instruments (Amendment) Act, 2018 (“NI Amendment Act”) is:

  1. to address the issue of undue delay in final resolution of cheque dishonour cases;
  2. to provide relief to payees of dishonoured cheques;
  3. to discourage frivolous and unnecessary litigation;
  4. to save time and money of Court/Parties to litigation.

The Lok Sabha passed the Negotiable Instruments (Amendment) Bill, 2017 on 23rd of July 2018, Rajya Sabha on 26th of July 2018 and subsequently the Negotiable Instruments (Amendment) Act, 2018 was notified on 2nd of August 2018 after receiving the Presidential assent.

COMPLAINTS

The NI Amendment Act inserts Section 143A which states that the court may issue an order to the drawer of the cheque to provide an interim compensation to the Complainant viz. the drawee of the cheque in case of dishonour of cheques. The NI Amendment Act has also placed an upper cap of 20% on the amount of the cheque to be paid by the drawer of the cheque as an interim compensation on dishonour of a cheque. The court trying an offence under Section 138 of the Act, may order the drawer of the cheque to pay interim compensation to the Complainant either in case of summary trial/summons case, where he pleads not guilty or in any other case upon framing of charges.

Under Section 143 of the Act, cases of dishonour of cheques may be tried summarily as per the procedure set out under Sections 262 to 265 of the Criminal Procedure Code, 1973 (“CrPC”), being punishable with imprisonment for a term not exceeding 1 year and fine exceeding Rs. 5,000/-. However, if at the commencement of the trial or during the course thereof, it appears to the magistrate trying the offence that a summary trial is undesirable on the ground that imprisonment of more than 1 year is deemed appropriate or for any other reason, the offence may be tried as a summons case.

It is pertinent to note that a person aggrieved on aspects relating to dishonour of cheques can either proceed to realise the amount of the cheque by pursuing a civil suit (recovery proceedings) or can file a complaint making it fall under the ambit of a criminal case or has an option to pursue both civil suit and a criminal complaint simultaneously.

Timelines

The interim compensation may provide a sense of relief to Complainant who puts himself through a lengthy process of court proceedings to realize the value of the dishonoured cheque. This may be seen as an effective tool wherein the drawee of the cheque will refrain himself from protracting the litigation and will show seriousness in ending the litigation. The timelines provided for the payment of the interim compensation shall be within 60 days from the date of passing of an order by the court of competent jurisdiction and the amendment also allows an extension of a further period of 30 days at the discretion of the court on providing sufficient cause by the drawer of the cheque.

Repayment of Interim Relief

In the event the drawer is acquitted in an order passed by the court in a proceeding, the court shall further direct the Complainant to repay the interim compensation paid by the drawee of the cheque along with interest at the bank rate published by Reserve Bank of India within 60 days from the date of passing an order by the court which may be extended by a further period of 30 days on sufficient cause being shown by the Complainant and at the discretion of the court.

This amendment relating to repayment ordered by the court of law is unlike any other civil suit wherein the amount paid by the plaintiff initially while filing a suit as ‘Court Fee’ is not liable to be refunded and shall be appropriated towards the establishment cost in the event the plaintiff loses the case and in case the plaintiff wins the case, the defendant would be liable to reimburse the amount paid for filing the suit.

Method of Recovery of Interim Relief

The interim compensation may be recovered as if it were a fine under Section 421[1] of the Code of Criminal Procedure, 1973 i.e. by way of attachment and sale of any movable property of the drawer, or a warrant to the Collector of the concerned district to recover the same as arrears of land revenue from the movable or immovable property of the drawer.

The fine imposed in an order passed under Section 138 of Act or an amount of compensation awarded under section 357[2] of the Code of Criminal Procedure, 1973, shall be reduced by the interim compensation already paid by the drawee of the cheque.                

APPEALS

The amendment introduces a new Section 148 to the Act which states that on appeal against conviction under Section 138 on the drawer of the cheque, the Appellate Court may order the Appellant i.e. the drawer of the cheque to deposit a minimum sum of 20% of the fine or compensation awarded by the trial Court. This amount payable by the drawer of the cheque shall be in addition to the interim compensation awarded by the trial court under the proposed Section 143A.

This practice of payment of certain amount (at the discretion of the court) has been prevalent when the accused is held guilty and convicted for the offence punishable under Section 138 of the Act for the purpose of obtaining bail. But by this amendment it has been made mandatory and the minimum amount payable has also been prescribed. 

Timelines

The timelines prescribed by Section 148 of the Act shall be the same as the timelines under Section 143A stated hereinabove i.e. the deposit of the amount as ordered by the Appellate Court on the drawer of the cheque shall be made within 60 days from the date of the order and is permitted to be extended for a period of another 30 days on sufficient cause being shown by the Appellant and as per the direction of the Appellate Court.

Repayment of the deposit

The Appellate Court may direct the repayment of the deposit at any time during the pendency of the appeal. In the event the Appellant is acquitted, the deposit amount shall be directed to be repaid by the Complainant to the Appellant along with the bank rate of interest as prescribed by the Reserve Bank of India within 60 days from the date of the order of the Appellate Court which may be extended for another period of 30 days as directed by the Court on sufficient cause being shown by the Complainant.

ANALYSIS

On encapsulating the entire text of the NI Amendment Act, the question on mind would be if the insertion of this amendment or the objective of NI Amendment Act i.e. to speed up the proceedings of the court, would be an achievable target or would this really strengthen the credibility of cheques.  

Cognizance is to be taken in the event the drawee of the cheque indulges in institution of fraudulent complaints on the drawer of the cheques. This may be relevant in cases where the drawer of the cheque, draws a cheque in favour of the drawee of the cheque as a collateral security and not for discharge of liability. In these cases, further hardship would be caused to the drawer of the cheque in case of providing a blank cheque for obtaining hand loan or for any other commercial transactions. Complaints have been instituted by the drawee of the cheques wherein the drawer provides a post-dated blank cheque and inspite of clearing the payment/loan, the drawee of the cheque would have presented the cheque for an amount higher than what was agreed and instituted a frivolous complaint/recovery suit against the drawer for recovery. The point to be noted here is that the drawer of the cheque is being made to suffer hardship in two instances,

  1. during the period the interim compensation directed by the court is to be paid and
  2. in the event of an appeal is preferred by the drawer of the cheque.

The legislative intent should have been to rather look into the authenticity of the cases in the event interim compensation is being ordered on the drawer of the cheque. Technological advancement has assured several modes of transfer of money and other means of securing payment in commercial transactions. These amendments would on the other hand make the proceedings of a complaint lengthier and cumbersome in case of fraudulent complaints, the reasons being, on acquittal of the drawer of the cheque, the method used for recovery of the 20% paid by drawee on direction issued by the court for repayment would follow the same method of recovery proceedings. In the event the repayment of the 20% is by way of a cheque issued by the Complainant and when presented, if dishonoured, the process would continue for the recovery of the amount. The legislators could have instead thought on two specific aspects; a. providing strict timelines or adherence to timelines within which the proceedings initiated would be completed and b. prescribing an easier process for repayment of interim relief/deposit provided by the drawer of the cheques on acquittal of the drawer as per the amendment instead of following the proceedings of a recovery suit.



[1] Section 421 of CrPC

Warrant for levy of fine

  1. When an offender has been sentenced to pay a fine the Court passing the sentence may take action for the recovery of the fine in either or both of the following ways, that is to say, it may
    1. issue a warrant for the levy of the amount by attachment and sale of any moveable property belonging to the offender;
    2. issue a warrant to the collector of the district, authorising him to realise the amount as arrears of land revenue from the movable or immovable property, or both of the defaulter: Provided that, if the sentence directs that in default of payment of the fine, the offender shall be imprisoned, and if such offender has undergone the whole of such imprisonment in default, no Court shall issue such warrant unless, for special reasons to be recorded in writing, it considers it necessary so to do, or unless it has made an order for the payment of expenses or compensation out of the fine under section 357.
  2. The Stale Government may make rules regulating the manner in which warrants under clause (a) of Sub-Section (1) are to be executed, and for the summary determination of any claims made by any person other than the offender in respect of any properly attached in execution of such warrant.
  3. Where the Court issues a warrant to the Collector under clause (b) of Sub-Section (1), the Collector shall realise the amount in accordance with the law relating to recovery of arrears of land revenue, as if such warrant were a certificate issued under such law: Provided that no such warrant shall be executed by the arrest or detention in prison of the offender.

[2] Section 357 of CrPC

Order to pay compensation:

(1) When a Court imposes a sentence of fine or a sentence (including a sentence of death) of which fine forms a part, the Court may, when passing judgment, order the whole or any part of the fine recovered to be applied –

(a) in defraying the expenses properly incurred in the prosecution;

(b) in the payment to any person of compensation for any loss or injury caused by the offence, when compensation is, in the opinion of the Court, recoverable by such person in a Civil Court;

(c) when any person is convicted of any offence for having caused the death of another person or of having abetted the commission of such an offence, in paying compensation to the persons who are, under the Fatal Accidents Act, 1855, (13 of 1855) entitled to recover damages from the person sentenced for the loss resulting to them from such death;

(d) when any person is convicted of any offence which includes theft, criminal misappropriation, criminal breach of trust, or cheating, or of having dishonestly received or retained, or of having voluntarily assisted in disposing of, stolen property knowing or having reason to believe the same to be stolen, in compensating any bonafide purchaser of such property for the loss of the same if such property is restored to the possession of the person entitled thereto.

(2) If the fine is imposed in a case which is subject to appeal, no such payment shall be made before the period allowed for presenting the appeal has elapsed, or, if an appeal be presented, before the decision of the appeal.

(3) When a Court imposes a sentence, of which fine does not form a part, the Court may, when passing judgment, order the accused person to pay, by way of compensation, such amount as may be specified in the order to the person who has suffered any loss or injury by reason of the act for which the accused person has been so sentenced.

(4) An order under this section may also be made by an Appellate Court or by the High Court or Court of Session when exercising its powers of revision.

(5) At the time of awarding compensation in any subsequent civil suit relating to the same matter, the Court shall take into account any sum paid or recovered as compensation under this section.

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