A change in law means MSMEs have greater power in cheque bounce cases : 26-10-2018

Indian courts are riddled with the humongous problem of pending cases. As per the 213th Report of the Law Commission almost 20 per cent of the pending litigation pertains only to cheque dishonor disputes under section 138 of the Negotiable Instruments Act, 1881.

The prosecution and recovery mechanism under Sections 138 to 142 of the Act was introduced by the 1988 Amendment with the objective of deterrence for enhancing credibility of cheque issuances in business transactions. The intent of the Legislature was to deter dishonest Drawers with the consequences of criminal trial if they were to issue cheques with the intention to defraud. Over time, the complex judicial procedures have been manipulated by unscrupulous Drawers to their advantage which has severely marred this objective, although, apparently there has been constant judicial effort to iron out the irregularities as evident from various judgements of the top court of the country.

In the wake of current scenario, The Negotiable Instruments (Amendment) Act, 2018 passed by both the houses (Lok Sabha on July 23, 2018; Rajya Sabha on July 26, 2018; and notified on August 02, 2018) has come as a breather for the aggrieved Drawees. It has been a welcome change for the already stressed MSME sector which often struggles to recover their contractual dues. Non-payment because ofcheque dishonor contribute majorly towards business inconsistencies leading not only to an unbalanced cash flow, but also chain of inconveniences/incalculable losses forced upon them involuntarily.

Further, delayed justice owing to lengthy court procedures add to the woes. Therefore, the Amendment Act aims to give potency in enforcing quick relief and to act as a deterrent for future cases by enhancing credibility of cheques as a negotiable instrument. Briefly, following are the key features of the latest 2018 amendment vide the added sections 143A and 148:

  1. Interim compensation to Drawee up to 20 per cent of the cheque amount in case of either summary trial or summons case where the Drawer pleads “not guilty”;
  2. In addition to the above amount, if the Drawer appeals against the compensation awarded by the trial court to the Drawee, the appellate court can further order minimum of 20 per cent of the awarded amount to be deposited/released to the Drawee; and
  3. In both (1) and (2), the amount is to be deposited within 60 days A very pertinent feature of this interim compensation is that at the court’s discretion it may be also recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973 implying that the courts have the power to issue a warrant for attachment and sale of any moveable property belonging to the offender (Drawer); or issue a warrant to the district collector to realise the amount as arrears of land revenue from the moveable/immoveable property of the defaulter (Drawer).

Unquestionably, the added clauses, that is, sections 143A and 148, will give teeth to the existing scheme of sections 143 to 147, which in effect is a departure from the provisions of the Code of Criminal Procedure and the Evidence Act. Currently, the courts are empowered to try the cheque dishonour cases as a Summary Trail (i.e. to be tried by a Judicial Magistrate of the First Class or Metropolitan Magistrate and empowered to sentence imprisonment for a term not exceeding one year and an amount of fine not exceeding Rs 5000).

This is except where the Magistrate believes that owing to the nature of the case,sentence of imprisonment for a term exceeding one year may have to be passed. Even then the Magistrate can still choose to continue the trial, but as a regular Summons Case (that is, those bearing sentence imprisonment up to two years) under the Criminal Procedure Code.

Further, in either of the cases the courts are mandated to conduct the trail on day to day basis until conclusion and which must be endeavoured to be concluded within six months from the date of filing of the complaint.

The combined effect of sections 143 and 143A would mean that, not only the Drawee can impress and urge upon the trial court to expect a speedy trial but also to grant an interim compensation of 20 per cent of amount of cheque as a partial recovery. Later, if the Drawer goes for appeal, the appellate court under section 148, can further order minimum of 20 per cent of the awarded amount to be deposited/released to the Drawee.

Thus, the Drawer of the cheque is made liable to prosecution and partial payment upon dishonour of the cheque implying that the provisions are punitive as well as compensatory, that is, the punitive aspect leading to compensation. It can be ascertained that the Legislature has made a remarkable move by bringing this amendment in the interest of speedy justice. MSMEs who are generally cash starved and their hands stretched because of irregular cash flow would welcome this long-awaited change from the law makers.

Source : Financial Express

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