Above: The new law on cheque bouncing hands the debtor a lifeline, while victimising the creditor
Amendments to curb cheque bouncing are flawed as they criminalise the victim of the crime when it should be the debtor approaching the court to find a way to stay out of jail
~By Ranjeev C Dubey
On July 25, 2018, the Lok Sabha approved yet another set of amendments to India’s troubled cheque bouncing law, the Negotiable Instruments (Amendment) Bill, 2017. This iteration was premised on the belated recognition that these cases took forever to be decided. The amendments therefore proposed to empower courts to order a debtor to pay 20 percent of the cheque amount to the creditor within 60 days (extendable of course!) as interim compensation regardless of the defence. If the debtor lost the case and filed an appeal, the amendments empowered the appellate court to ask him to make a deposit of 20 percent of the compensation awarded by the trial court before the appeal could be heard.
Laudable as the objectives are, on the face of it, I don’t see how this piece of what Indians call “tokenism” is going to make the slightest difference. In a world where State Bank of India charges you 16.5 percent on a clean overdraft, refusing to pay your creditor makes perfect sense when you know that the court handling your cheque bouncing case is unlikely to award interest at much more than eight percent after litigation that could go on for several years. For the law to now offer 20 percent of the amount due as interim compensation to a creditor who will lose nine percent a year in interest on a bad debt even if he wins the case is not band aid for the battered: its legislatively approved felony.
In such an environment, fighting a court battle over 20 percent of the amount due as interim compensation has two main fallouts. First, it delays the case by months as the contenders argue about the justification for the interim relief. Bear in mind that if a magistrate fails to give you interim compensation within 60 (or even 90) days, you can both grit your teeth and grovel for early hearings or you can go up in appeal against the magistrate’s failure to adhere to the law’s timelines. As the appeal court has no timeline to follow, it can take a few years to decide your case. Should it eventually sympathise with you, it will at best direct the magistrate to decide your application quickly. When you get back to the magistrate, he may by then be seriously upset with you and refuse you what is, after all, a discretionary order. I can quote you dozens of cases where the Supreme Court has directed a High Court to decide a case within a timeline only for the litigant to find that the High Court didn’t really pay much attention to the direction!
This brings us to Fallout No 2. All discretion relief runs on face value or “last mile connectivity”! To have the benefit of this discretion, you now need celebrity counsel. This means that young and cheaper lawyers who handle the bulk of cheque bouncing cases in the country are not going to cut it anymore. How much of the 20 percent will survive to arrive in your hands after you have paid the celebrity counsel?
It seems to me that the problems with our cheque bouncing law are easy to see, but this fix needs us to take a harsh look at the structure of our laws. If we really want an effective cheque bouncing law, we need to stand the law on its head and change its priorities. In a nutshell, it comes down to one simple thing. As it stands today, the law criminalises the victim of the crime. The creditor has to, for a start, find a lawyer, file a complaint, stand in line with other undertrials in court on that day till his case is called out to hearing, appear on every date, and “prima facie” prove his case by calling his banker as a witness, all of which can take a year or more. When he has done all this, the court may issue a notice to the debtor, who then avoids receiving it for another year. When he finally does appear two years after the saga began, he starts stonewalling the case using well-known tactics.
To me, the solution is very simple. The law should stop trying to balance the scales between debtor and creditor, giving both an equal chance to win the judicial match! The law should require the debtor to find the creditor and not the other way round. If a cheque bounces, it’s the debtor who should approach a court and find a way to stay out of jail. The law need simply say that if a cheque bounces, the debtor goes to jail unless a magistrate intervenes. Given the risks and inconvenience of the slammer, perhaps the debtor will find it better to honour his cheques than run around trying to save himself from jail day to day.
I am not being facetious, far from it. I am aware that every man is innocent till otherwise proven. I am arguing that guilt is inbuilt into the debtor’s act of dishonouring his promise to pay. Parties make decisions in their commercial wisdom, right or wrong. If they are wrong, they should get it in the neck. There should be no occasion for courts to insert themselves into the distribution of business risk and protect one party or another from its bad commercial call. If I miscalculated my cash flow, I must find a way to pay or muse on existential issues in jail. Where is the philosophical justification to punish the creditor for my stupidity?
Equally, it may well be that the whole thing was one big computer glitch; or worse, I handed a cheque to a devious, satanic fraudster who is determined to blackmail me. It’s fanciful but then, well, maybe. If a creditor’s fraud contrived a crime (if such a thing is possible), then it is for the debtor to prove the fraud. At the end of the day, I need to do my due diligence before I start sprinkling cheques about the city. Why should the law promote the morning-after pill?
This is what it comes down to. Courts need to become courts of law, not courts of justice. As the situation stands today, there is no cheque bouncing law in India, only another onerous procedure that brings intermittent relief in the indeterminate future. How can a government determined to reduce cash-dealing in the economy achieve its objectives without making cheques nearly as holy as their cows?
What we need to do is go the Dubai way. If you issue a cheque, you must stay in jail till you pay your creditors. I admit this seems medieval but then, how jurisprudentially alien is it, really?
—The author is Managing Partner of Gurgaon-based corporate law firm N South and author of Legal Confidential (Penguin 2015)