Dishonoured/ bounced cheque is cheque that the bank on which is drawn declines to pay (“honour”). There are a number of reasons why a bank would refuse to honour a cheque, with insufficient funds being the most common cause. The holder of the cheque can file a complaint under Section 138 of Negotiable Instrument Act, 1881 against the drawer of the cheque and can also file a civil case for recovery. Prior to this, the drawer of a dishonoured cheque could only be criminally prosecuted under Section 420 of the Indian Penal Code (for offence of cheating). In June 2020, the Ministry of Finance proposed the decriminalisation of various minor economic offences, including the offence of cheque bounce under Section 138. 

In what circumstances cheque bounce does not amount to an offence?

 (a) When the cheque is given as an advance and there exists no legal liability for payment as such

(b)When the cheque is given as a security

(c) there is disparity in amount stated in words and figures

(d) alternations in cheque require attestation by the drawer

(e) If the cheque is found mutilated

(f) When a cheque is issued to a charitable trust as a gift or donation.

The Supreme Court in its recent decision dated April 16, 2021, observed that there are around 35 lakh cheque bounce cases pending before various courts. To ensure speedy disposal of these pending cases, the Supreme Court gave a number of directions, including asking the government to amend the laws to allow clubbing of multiple trials in cases filed for a same transaction against anyone.

The apex court has said that the evidence in cheque dishonour cases can now be tendered by filing affidavits and there would be no need to examine witnesses physically. The court has asked the Centre to make “suitable amendments” in the Negotiable Instruments Act to ensure that trials in cheque-bounce cases lodged in 12 months against a person can be clubbed together into one consolidated case.

Those who support the decriminalisation note that the main purpose of the provision is compensation and not punishment. The Negotiable Instruments (Amendment) Act, 2018 inserted Section 143A which linked the interim compensation to be paid to the payee with the cheque amount. Moreover, the offence under Section 138, is compoundable and hence, the main focus is on compensation rather than on punishment. As per the ‘reformative theory’, the State should make an attempt to reform an offender rather than merely punishing them. A cheque bounce case is an economic offence and hence, reformation can be brought about by imposing suitable compensation.

Those who oppose decriminalisation anchor themselves in the ‘retributive theory’– severely punish an offender so that it sets an example in the society. They argue that decriminalisation would enable people to issue post-date cheques without an intent to pay, without impunity. 

Conclusion:

Decriminalisation is a welcome step but it should not obstruct the smooth operation of economic activity and sufficient measures should be in place to assure the payees that the cheques presented to them would be honoured.

References:

https://www.thehindubusinessline.com/business-laws/time-for-decriminalisation-of-cheque-bounce-cases/article35266720.ece

Aishwarya Says:

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