New Cheque Bounce Provisions give MSME’s more power in Cheque Bounce Cases
After Demonetisation the whole banking system has undergone an overhauling of sorts. Be it a deposit or withdrawal process, opening a bank account or fees for bank accounts. Along with these changes one marked change is that of cheque bounce provisions. As per the Negotiable Instrument Act, 1881 a cheque, given to discharge liability or debt, is dishonoured if there are not enough funds in the account of the holder and the person will be charged for punishment which can be two years of imprisonment or fine of double the cheque amount or both. This provision has discouraged a great number of people in giving bounce-able cheque. However, the same act has been used as a delaying tactic by the drawee to delay the payments. Also, a lot of manipulation of law was being carried out under Section 138 of the Act. To make amendments and discourage frivolous and unnecessary litigations new NI Act, 2018 has been introduced on 2nd August 2018. In this, Section 143 A & 148 Provision was included.
Salient features of Section 143 A & 148
Under Section 143 A the court is empowered to order the offender to pay Interim Compensation to the Payee if the following circumstances arise;
- In a summon case or summary trial case, the offender pleads not guilty to the accusation mentioned in the complaint.
- Upon arraignment, in any other case, the interim compensation amount should only be 20% of the cheque amount and not more.
- The payee may have to refund the entire interim compensation with interest if the drawer is acquitted.
- Section 148 gives the Appellate Court Power in matters of appeal against the judgement of Trial Court. In this case, the Appellant is ordered by the court to put down a minimum of 20%% of the compensation or fine amount awarded to them by the court. This amount will be an addition to the already paid amount as per Section 143A. During the appeal pendency, this amount may be released to the complainant.
- In this amendment, the interest of the drawer is also considered as in case of drawers acquittal the refund is ordered with interest to the payee within 60 days from the order date.
MSMEs feel greater power with 143A & 148 provisions
The amended Negotiable Instrument Act, 2018 was brought to reduce the unnecessary burden of dishonour of cheque cases and also benefit the complainant to some extent by forcing the interim compensation payment by the drawer during the case pendency. Such cases mostly victimised the MSMEs, due to easy appeal filings, delay tactics and putting stay orders on proceeding by taking advantage of Section 138 of the NI Act.
However, with the introduction of Section 143A & 148 in the Negotiable Instrument Act, 2018 MSMEs are feeling powerful as they do not have to wait long periods to get their due payments and also are given interim compensation during the case pendency. This interim compensation is refundable with interest, to the drawer, if the drawer of the dishonoured cheque is acquitted. This provision of liable refund protects the interest of drawer from an unjust prejudice.
Not only that, with this change in the law, the drawer can request a speedy trial and also demand interim Compensation, which is 20% of the cheque amount, as part of recovery. As per section 421 of the CPC 1973 the interim compensation can be recovered as fine. It also implies that the court can issue a warrant to the district collector to collect this amount by the sale of any immovable property of the defaulter. This amendment will only be applicable for the cases admitted on or after 1st September 2018.
This has saved the sector of MSMEs from the stress that they often face due to the cash flow problem and losses observed due to the dishonour of cheques.
Resultant penalty for cheque bounce
As stated earlier the check bounce is a punishable offence which often results in grave penalty. The following penalties are applied in case of cheque bounce;
Penalty imposed by the Bank-
If the cheque of the issuer is bounced due to any technical reason or paucity of funds then both payee and defaulter are charged by their banks respectively. Besides, if the bounced cheque was a payment of loan then late fee charges will also be added in the penalty which differs from bank to bank. Also, premium accounts have higher penalty charges.
CIBIL Score is affected-
This is an indirect form of penalty which is reflected in your CIBIL credit score. If a person has a history of bounced cheque then it can have a negative impact on his CIBIL score to an extent where his prospect for future loans become bleak. Therefore, it is important for cheque issuer to have sufficient funds in the accounts before paying via cheque.
Criminal or civil charges can be filed-
Cheque bounce is so serious offence that there are laws to protect the aggrieved party. If the amount on the cheque bounce is not that huge that needs to be taken to court but if the amount is big then the aggrieved party files civil or criminal charges against the defaulter.
If the habit of cheque bounce persists for the person then and the cheque has been bounced at least four times, each of value of 1 crore or more then, the bank can stop issuing cheque book to that person. Also if the bounced cheque is against the loan repayment then the bank has the right to draw payment from the account of the holder or use collateral as a form of payment after a certain time has passed.
The best way to avoid facing the cheque bounce penalties is to keep more than sufficient funds in the account and in case the fund was found to be insufficient after the cheque has been given then inform the payee about it and issue a stop payment for cheque cancellation.