Pawan Kumar 08 August 2020
RITUPORNA GUPTA 13 October 2020
Hello Pawan Kumar,
Yes rightly said that the Government (Finance Ministry) has proposed to decriminalize cheque bouncing. The focus of the Supreme Court was to decriminalize dishonour of cheques of smaller amounts and not those of bigger amounts. One such important suggestion made by the Court was developing a mechanism for pre-litigation settlement in these cases. Such a measure of pre-litigation process can be very helpful in settling the cases before they come to Court.
Following the said position, a civil court may be given jurisdiction to deal with cases relating to dishonour of cheques of small amounts. One such benefit can be that it will reduce the number of frivolous suits filed in the civil courts since the party will be having an additional burden of paying court fees for filing a plaint and unless the person is a bona fide claimant, he will have to think before approaching the Court.
If the decriminalization of cheque bouncing will be implemented, it shall cause major inconvenience while doing business. The real estate developers in addition to selling flats also arrange for housing loans where the lender gets post dated cheques from the home buyer and the borrower. The lender has the flat as collateral against which the loan is given but post dated cheques provide security too because if the post dated cheques' bounce the issuer/lender can go to a jail.
Also, the procedure to report a bounced cheque case is highly inconvenient as separate case for each and every cheque has to be filed where mere police complaint does not resolve the matter. Hence, decriminalizing is not solution but surely making the process of enforcement and prosecution simpler and easy shall help.
Dishonour of cheque is equivalent to fake currency amounting to cheating. Therefore, cheque bouncing cannot be equated with a minor non-compliance or a procedural lapse. It should remain a criminal offence.
Even while paperless transaction when an instrument is presented that is backed by an insufficient balance. Sure, a grace period can be given for the payer in case of legitimate delays in clearing and settlement. But this offence should not be let off as civil.
Also, it is witnessed that there has been always a struggle for the rights of the lenders. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, has not been very successful in resolving debt defaults faster. Even with collateral, the banks are unable to liquidate it quickly. Too many stay orders or other delaying tactics seem to succeed.
Under the Insolvency and Bankruptcy Code (IBC) being a bolder reform was expected to instill discipline among borrowers and empower creditors. But, it stands suspended in this Covid pandemic, probably for a year. Lenders cannot initiate insolvency proceedings against their debtors.
The government may have done it to prevent courts from being overwhelmed by bankruptcy cases, but it may inadvertently make the creditors themselves much worse off. Not having recourse to the IBC might push some creditors to the brink of bankruptcy themselves. Its suspension has meant that even companies that would voluntarily restructure their debt are disallowed.
Hence, it would help if cheque bouncing and SARFAESI offences are not decriminalized.
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