Saturday, December 2, 2023

Cheque Mate

Cheque Mate
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Above: Vijay Mallya stays untouched, but his former employee A Raghunathan (right) has been jailed for bounced cheques worth Rs 22.5 crore

With approximately 18 lakh cases involving cheque bouncing pending in courts, the cabinet clearance of a new amendment promises to make it easier for victims  to get compensation

~By Chandrani Banerjee

Fugitive Vijay Mallya may have just celebrated his 62nd birthday in typical style in London but the chief financial officer of his bankrupt Kingfisher Airlines took the rap. A Raghunathan was sentenced to 18 months in prison in connection with a case filed by GMR Hyderabad International Airport for two cheques that had bounced. The amount involved was Rs 22.5 crore.

GMR could afford to take the hit but a majority of such cases involve complainants who are small-time traders or individuals who cannot afford the expense and delay while waiting for judicial relief. For them, the recent cabinet approval of an amendment to the Negotiable Instruments Act, 1881, offers hope. It gives the courts power to order interim compensation for those holding cheques that have bounced. The amendment is likely to be introduced in the ongoing winter session.

The move is also seen as part of the government’s push to discourage cash transactions. Cheques are an integral part of the payments landscape, and form the backbone of trade and commerce by being negotiable instruments. On the legal front, it means the courts will reduce the burden of litigation relating to cheques that have bounced—there are approximately 38 lakh such cases pending in various courts according to the Law Commission.

For most of these litigants, the cost and length of a legal battle is exhausting, both physically and monetarily. Says Sharad Agarawal: “I am a small businessman. I supply books to retailers. I pick them from wholesalers and then deliver to retailers. Most payments are done by cheque. Now imagine if a cheque bounces—I do not have huge capital and even the time to run around after lawyers to get any blocked amount through litigation. I only request with folded hands to the person who owes me money. Otherwise, with the help of my lawyer friends, I sometimes send them notices. I have no other option.”

The government’s proposal for interim compensation will discourage people from holding up payments by issuing cheques without having the requisite funds. There are also unscrupulous elements who withhold payments deliberately knowing a legal case will give them ample time to settle, once the case is finally decided. Mohan Guruswamy, head of the Centre for Policy Alternatives, told India Legal: “In 1980, I wrote to the then prime minister that if someone issues a cheque knowing full well that he does not have the sufficient amount in his account then it is a deliberate fraud. Therefore, it should be a punishable offence. The law was there but providing it more teeth, I think, will surely dissuade people from commiting such an act. It may appear very simple, that the cheque bounced and the money was later paid but there is huge stress and ordeal attached to it. And that needs to be taken into consideration.”

There are also problems to do with differing interpretations by various courts. In Anil Kumar vs State of UP, the acquittal of the offender was challenged by the payee before the sessions court. The sessions court refused to entertain the plea, saying it had no jurisdiction over the matter. The payee (in whose name the cheque was issued) appealed to the high court where it was argued that the sessions judge’s view was wrong. The single-judge bench of the Allahabad High Court found the law was not clear on the matter, and referred the matter to a larger bench.

Similarly, in Shyam Pal vs Dayawati, the latter had borrowed  Rs 5 lakh on two occasions from the former. Pal issued Dayawati two cheques with consecutive numbers, but they bounced owing to insufficient funds. The payee filed a suit under Section 138 of the Negotiable Instruments Act in a trial court that sentenced the offender to 10 months’ imprisonment for each bounce—a jail term of 20 months. The drawer appealed that both the complaints had arisen out of a successive transaction, so the punishment should run concurrently, and not separately. His appeal was rejected by both the appeal court and the Delhi High Court.

The Supreme Court, however, set aside the previous orders and directed that the accused would undergo the sentence concurrently.

Abani Sahu, a Supreme Court lawyer, has represented a cheque bounce case in as many as three states for his client and says that once the amount is paid the client is supposed to withdraw the case and forget the ordeal. But the ordeal is much bigger than the act. Adds Professor Arun Kumar, reputed economist and author: “This is a very good move. The fraud is so rampant and sufferers have to bear it without much noise. This will help people to carry on with less stress. The fraud under Section 138 is huge. The interim compensation is going to provide relief and confidence that no one can do this to you.”

Government sources say the amendment has been proposed to help trade and commerce, particularly micro, small and medium enterprises, and to increase the credibility of cheques as a financial instrument. Cheques bouncing may cause a lot of distress in trade and business specially in the MSME sector, but it also affects business. “The common aim in such matters is reducing delaying tactics by unscrupulous drawers of bounced cheques. It also gives an opportunity for easy filing of appeals and obtaining stays on proceedings. A payee of a bounced cheque spends considerable time and resources in court proceedings to realise the money due to him. And this is humiliating,” feels Kumar.

Sources in the law ministry said that this amendment has come after various representations by the public and the trading community to draw attention to the injustice caused due to pendency of cheque dishonour cases.

“We have given representations. We have witnessed where business enterprises have suffered huge losses due to cheque bounce. They are small, limited budget entities and pursuing a case for long is not possible for them. It affects their business. So, that interim compensation will be paid is surely a welcome move. And there will be a burden on the person who is issuing the cheque. Random issuance of cheques just to delay the payment will cost them money,” Praveen Khandelwal of the Confederation of All India Traders told India Legal.

The amendment will also allow lending institution banks to continue to extend financing without the apprehension of loan default because of bouncing of a cheque. The amendment to the Act is expected to impact approximately 18 lakh cheque bounce cases pending in various courts. The time taken to recover the money is long and the government has taken that into consideration before the amendment, says a law ministry official.

Whether this is really cheque mate will have to await passage of the amendment in parliament.

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