The Buyt Desk
The Finance Ministry is thinking over the steps to reduce cheque bounce cases in India. They are receiving many suggestions from trade bodies and other related offices. Suggestions include changes in auto debit Standard Operating Procedure (SOP) modifying the Negotiable Instruments Act, 1881.
What is a cheque bounce case?
An account holder issues a cheque towards some payment. The cheque is presented to the bank for payment and it is not cleared but returned unpaid by the bank because of insufficient funds in the account. When a cheque is returned without payment, the cheque is said to have bounced. And this is an offense as per the Indian legal system and is a jailable offense.
Current cheque bounce scenario
In India, cheque bounce cases are clogging the legal system. The finance ministry is thinking about various steps to deal with cheque issues. The ministry held a meeting with high-level officials and a panel to discuss – how to deal with the high incidence of cheque bounce cases, and many suggestions were made. Below are a few suggestions made at the meeting –
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Dipping into other accounts of a cheque issuer
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Prohibiting opening of new accounts of offenders
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Debiting other accounts of the cheque issuer if his or her account is short of funds to honor the cheque
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Treating cheque bounce as a default of the loan and reporting the same to credit information companies for necessary downgrade of score
A proper legal view of these suggestions is yet to take place. Only after it is legally approved, these suggestions will be accepted and new rules will be made. If these suggestions become rules, the payer will impose cheque honoring without the matter going to court. These will compel the cheque issuer to make payment by creating a restriction through technology.
How will it help if these suggestions are implemented?
If these suggestions are implemented, it will help promote ease of doing business and discourage people who have insufficient funds in their accounts from willfully indulging in the issuance of cheques. If these suggestions become the rule then implementation would be challenging as the integration of data across the banks is needed to get all financial information about an individual. Also, Standard Operating Procedure (SOP) for auto-debit and other permissions would be required for implementing these suggestions.
What are the likely actions to be taken by the finance ministry?
Based on the suggestions at the meeting below are a few actions the finance ministry would take to curb cheque bounce cases –
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Dipping into other accounts of the cheque issuer
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Barring the opening of new accounts for offenders
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Debiting other accounts of the cheque issuer if the account is short of funds
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Treating cheque bounce as the default of a loan and reporting it to credit information firms
What are current laws against cheque bounce cases?
In the Indian law system, Section 138 of the Negotiable Instruments Act, 1881 tackles cheque bounce which is the dishonor of a cheque due to insufficient funds in the account. Under Section 138 of the Act, a complaint for the dishonor of a cheque can be filed in the court where the bank of the payee is located. Cheque bounce is a punishable offense and can be fined up to twice the amount of the cheque while imprisonment may be for less than two years. In a few cases, both fines and imprisonment may be imposed as punishment.
Many pending cases of cheque bounce
The system is upset about a large number of pending cases of cheque bounce. To deal with 35 lakh pending cases in India, the Supreme Court had formed a committee with a mandate to suggest steps to be taken for early disposal of these cases. This committee had recommended procedural reforms and augmentation of infrastructure along with full use of technology to ensure that disputes are resolved swiftly. Even a few changes in the Negotiable Instruments Act, 1881 were suggested.
During the hearing, to deal with such cases, the Center had “in principle accepted” the need for creating additional courts. Also, trade bodies have pitched in for the fast disposal of such cases and changes in the cheque bounce law.
Also, industry body PHDCCI has urged the ministry to take action like enforced suspension of bank withdrawals for a few days after cheque bounce to make the cheque issuers accountable for their action. Also, they are suggesting the government enact a law that from the date of the cheque bounce, through mediation the dispute between the two parties must be settled within 90 days.
