What are some new guidelines by Supreme Court regarding cheque bounce matter?

What are some new guidelines by Supreme Court regarding cheque bounce matter?

Recently, the Supreme Court has constituted a committee under the Chairmanship of former Bombay High Court Judge, Justice RC Chavan to devise steps for expeditious disposal of cases under Section 138 of the Negotiable Instruments Act.

Introduction Cheques are used for various important transactions and the majority of the cheques are processed and cleared by banks daily. Cheques are considered a reliable method of payment adopted by many people.

For precautionary measures, it is advisable to issue crossed "Account Payee Only".

The author of the cheque is called 'drawer', and the person in whose favour, the cheque is drawn is called 'payee, and the bank who is directed to pay the amount is known as 'drawee'.

What is a cheque bounce?

Cheque bounce is a situation when a cheque is unable to process after submitting it to the bank, mainly for these reasons -

• Insufficient funds in the issuer's account

• The wrong date is mentioned on the cheque,

• The signature on the cheque is not matching with the registered signature recorded by the bank,

• Differences in the mentioned amount in numbers and words

• The cheque is so damaged that any of these - cheque number, name of the payee, account number, the amount or the signature on the cheque - is undiscoverable.

What happens if a cheque is dishonoured?

When a cheque is dishonoured, the following consequences are followed:

• A 'Cheque Return Memo' is issued by the drawee to the banker of the payee mentioning the reason for not being encashed.

• The payee's banker then gives the dishonoured cheque and the memo to the payee.

• The holder or payee can resubmit the cheque within three months of the date mentioned in the cheque, in case the payee believes it will be honoured the second time. However, if the cheque issuer fails to make a payment, then the payee has the right to prosecute the drawer legally.

The payee may legally sue the defaulter/drawer for the dishonour of cheque only if the amount mentioned in the cheque is towards discharge of a debt or any other liability of the defaulter towards the payee.

If the cheque was issued as a gift, or towards lending a loan or for unlawful purposes, then the drawer cannot be prosecuted in such cases.

Some Recent Supreme Court Cases Regarding Cheque Bounce

Case 1: Freezing of bank accounts, provide for post-summons mediation in cheque bounce cases

It was asked before the Supreme Court that the banks shall be reasonably directed that at the time of issuing the dishonour memos under the provisions of the Negotiable Instruments Act, shall disclose the present mobile number, email address and postal address of the drawer of the cheque.

The summon can be sent using electronic means such as - SMS, WhatsApp, email or to the postal address of the defaulter. The summons should reflect a specific date for mediation as well as a date for trial.

The Standard Operating Procedure in the matters in post summon mediation shall involve a consultation with the relevant stakeholders. However, it is to be noted that mediation should be time-bound, cost-effective, and should not be another scope for the accused to delay the trial.

Case 2: SC declines plea to exclude Lockdown period to enhance the validity of Cheques

The Supreme Court, while examining the writ petition filed under Article 32 of the Constitution of India, requesting an extension to the validity of cheques, excluding the lockdown period, stated that such matters are subject to consideration by the Reserve Bank of India, and therefore Supreme Court cannot interfere in such cases.

Case 3: Considering decriminalisation of Dishonour of Cheques of Smaller amounts

The Supreme Court stated the intention of the legislature behind such rule of criminalization of dishonour of cheque is to ensure the faith in the efficiency of the banking operations and credibility in transaction regarding business based on cheques.

In order to determine the high incidences of dishonour of cheques, the strong criminal remedies were provided to ensure the conversation to the complainant.

The provision of criminalisation was meant for the speedy trial of the matters.

Considering the huge number of negotiable instrument cases, the bench suggested to concentrate on the development of the pre-litigation settlement.

As per the Legal Services Authorities Act 1987, a statutory mechanism is provided for disposal of the cases by Lok Adalat. An Award passed at the pre-litigation stage or pre-cognizance stage shall have an effect of a civil decree.