With the advancement of technology of digital transfer, there is no reason to accept cheque as a payment instrument at all
As there is a large number of pending cases relating to cheque bounces in Maharashtra, Delhi, Uttar Pradesh, Gujarat, and Rajasthan, the Supreme Court in May 22 has directed to constitute special courts in these states with retired judges.
Before the introduction of Section 138 of Negotiable Instruments Act in 1989, bouncing of cheque for want of funds was not straightaway a criminal offence. It was considered only as a civil dispute. There was a possibility to invoke Section 420 of Indian Penal Code to treat the cheque bounce as cheating. But in such cases, the beneficiary of the cheque had to prove the intention of the issuer of the cheque to cheat him. But after introduction of Section 138 of NI Act, if the cheque has been issued for clearance of liability and if the cheque is returned for insufficient balance in the account, it becomes a criminal offence. Of course, there are procedural aspects as to the need to give notice to pay, etc. This was made to enhance the acceptability of cheques in the country.
Now it is reported that many suggestions were made at a high-level meeting recently called by the Government to deal with the high incidence of cheque bounce cases and the government is contemplating to introduce some of the suggestions.
One suggestion is to dip into other accounts of a cheque issuer in case of insufficient balance in one account which results in return of cheque. It is strange that the suggestion has been made without understanding the legal relationship between a banker and a customer. Banks open and operate accounts for customers as per the contract between the bank and the customer and it is subject to various provisions of Indian Contract Act.
Bankers cannot be made a party in the dispute between the drawer and payee of a cheque. The banker is there to execute the order of the drawer as the contract is between the banker and its customer. Making the banker help the beneficiary of a cheque will be patently illegal.
Banks can debit a customer’s account only as per mandate and not otherwise. There is Section 31 of NI Act which states as follows: Liability of drawee of cheque — The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.
The Government is looking at another suggestion that is to prohibit opening of new accounts to offenders of cheque bounce cases. It is possible to implement this suggestion just with an administrative order from Reserve Bank of India. But the judiciary may look into such direction as discrimination as until an offence is proved and the person is convicted.
The issuer of the cheque bounce case cannot be considered as a person who has committed the offence until convicted by the court.
Yet another suggestion is to treat the cheque bounce similar to loan default and to inform credit information companies for necessary downgrade of score.
Industry body PHDCCI has suggested to the Finance Ministry to take measures like compulsory suspension of bank withdrawals for a few days to make cheque issuers accountable for their action in cheque bounce cases. Again patently it is illegal to stop operation in bank accounts for such a reason. Operations in bank accounts can be stopped only when there is a court order like Garnishee order, or where there is attachment order from Income Tax department, etc. Or there can be a banker's general lien over the balance.
The industry body has also suggested enacting a law that from the date of dishonouring of cheque, the dispute between the two parties must be settled within 90 days through mediation. Enacting such a law may be easier. But how to implement the time line? Even in mediation there is scope to drag the case endlessly.
The best way to check cheque bounce cases is to reduce the incidence of issue of cheque. With the advancement of technology of digital funds transfer, there is no reason to accept cheque as a payment instrument at all. We may even remove the penal provision under Section 138. This penal provision was introduced when online transfers were not possible.
Now there is no necessity to continue the same and to provide an avenue for a number of criminal cases. If someone is still accepting a cheque as a medium for payment, it should be their funeral. Let them understand the risk and let them take that risk. Let them not be allowed to strain the already overburdened judiciary.
(The author is a retired banker)