Relief For Victims of Dishonourable Cheques: A Boon For Businesses

To Safeguard people legislature has brought about the recent amendment to the Act called "The Negotiable Instruments (Amendment) Act, 2018"


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While businesses in India continue to go digital, the sanctity of cheque transactions continues, particularly for small and medium businesses. Cases of dishonour-of-cheques is a growing problem and can adversely impact SME's and MSME's growth and sustenance. Recently the victims of such transactions received a boost in the arm through the Negotiable Instruments (Amendment) Act, 2018.

In the year 1988, the Negotiable Instrument Act, 1881 (the "Act") was amended to introduce chapter XVII to the Act. Chapter XVII (the "Chapter") pertains to penalties in case of dishonour- of-cheques, more commonly known as "cheque bouncing case". The Object behind introducing the Chapter was primarily to enhance the acceptability of the cheques in settlement of liabilities. The Chapter made dishonour of cheque a criminal offence punishable with penalties and imprisonment. The introduction of the Chapter brought about a significant change in the usage and importance of cheques in India.

Reasons behind the amendment to the Negotiable Instrument Act

However, as the years passed the number of cheque bouncing cases pending before the Magistrate Courts assumed considerable proportions. The increasing number of pending cases implied a delay in the disposal of these cases, and thus delay of justice. This diluted the effect of the Chapter, and its object stood compromised. Over the years, there have been several measures taken by the legislature as well as the judiciary to expedite the disposal of cheque bouncing cases, and thereby preserve the sanctity of cheque transactions. In furtherance of such steps, the legislature has brought about the recent amendment to the Act called "The Negotiable Instruments (Amendment) Act, 2018".

The Negotiable Instruments (Amendment) Act, 2018 (the "Amendment Act") is an endeavour to provide interim reliefs to complainants of the cheque bouncing cases and preclude delaying tactics of filing frivolous Appeals in such cases.

The significance of the amendment

The Amendment Act introduces two new sections to the Act viz. Section 143A and Section 148.

Section 143A provides discretionary power to the Court to order the drawer of the cheque (the "Accused") to pay interim compensation to the Complainant, either when he pleads not guilty to the acquisition made in the complaint, in summary, trail or summons case; or upon framing of charge, in any other case. The interim compensation cannot exceed 20% of the cheque amount. The Accused ought to pay the interim compensation within 60 days from the order of the court, which may be extended further by 30 days on sufficient cause being shown by the Accused. If the Accused is acquitted the complainant will have to repay the Accused the amount of interim compensation along with interest.

This interim compensation would be adjusted against the amount of fine if imposed on the Accused in the final order of the case.

In case the Accused or the Complainant fails to pay or repay the interim compensation amount the court can recover the same as fine under section 421 of Code Criminal Procedure 1973, which includes attachment of immovable property of the concerned person.

Section 148 provides that in an appeal by the Accused against the conviction in a cheque bouncing case, the appellate court may order the appellant to deposit minimum 20% of the fine awarded by the trial court. This amount shall be in addition to the interim compensation paid by the appellant under section 143A. The amount so deposited may be directed to be released to the Complainant any time during the pendency of the appeal. In case if the Appellant is acquitted the Complainant will have to repay the amount so deposited along with interest.

Road Ahead:

The Amendment Act in the true sense provides for interim relief to the Complainant. Such Interim relief would be extremely beneficial to Individuals, and Micro, Small and medium enterprises ("MSMEs"). In case of cheque dishonour where the amount is enormous for individuals and MSMEs, the interim measure shall reduce the impact caused due to the dishonour of cheque.

The amendment is likely to have a significant impact on the cheque bouncing cases. The drawers of Cheque would presumably be more cautious while issuing cheques and delaying tactics of the drawer by way of frivolous appeal is more likely to be precluded. This shall go a long way in restoring the sanctity of the Cheque transactions.

Mayur Shetty and Vibhor Kapoor

Associate Partner and Associate of Rajani Associates

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