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Amendments to Negotiable Instruments Act

Published: 11 Feb 2018

Payment via cheque by issuer to the payee is a long-standing mode of effecting payment through banks. Payment via account payee cheques does strengthen the cashless campaign in India program.

However, this is just one side of a coin.  

On the other hand, a cheque issued by issuer (with no / insufficient balance in such person’s bank account) to payee with intent of committing default in payment and dishonor of such cheque by the banks with the reason of absence of sufficient funds in the issuer bank account is a common practice in existence in Indian financial and banking system for quite long.

Due to dishonor of cheque, the payee is severely affected as it receives no money as promised, is subjected to penalty imposed by the bank in the first instance for return of cheque and then has to spend money in courts to take the issuer to task and revolve around the courts. Millions of cheque bounce cases are pending in different courts as of now.  

Due to this scenario, various quarters have made representations to the government regarding prejudice grieved by payees due to long standing unresolved cheque bounce cases. Such representations include delay tactics by unscrupulous drawers of dishonoured cheques, relatively easy filing of appeals and obtaining stay on proceedings.

After taking into consideration of such representations, the government recognized the burning need to accord protection to the payees and to bring stability to trade and commerce community by reposing the credibility in the financial transactions via cheque as a negotiable instrument.

Union cabinet promulgated an ordinance to amend the existing Negotiable Instruments Act, 1881 (Act) to tackle cheque bounce cases that are causing numerous hardships to payee and trading community.

The following are some of the amendments to the existing Act:

·       Empowerment of courts to order for payment of an interim compensation to the affected parties due to dishonor of the cheques.

·       In case of acquittal of drawer in a cheque bouncing case, the court may direct the payee to repay the amount paid as interim compensation with interest, if any.

·       Grant of authority on appellate courts to order the appellant to deposit a part of the compensation awarded by the trial court in appellant cases.

·       Setting up of a mechanism to fast track trials related to cheque bounce related matters for speedy disposal of case at the shortest possible time to provide quick relief to effected parties.

·       Special provisions to strictly deal with repeated offenders of cheque bounce cases to prevent repetition of the same offence by the offenders.

It is hoped that a serious implementation of the proposed amendments will provide speedy justice to the effected parties in cheque bounce cases, quick disposal of cheque bounce cases by punishing the culprits with rigorous punishment and certainly promote cashless transactions.

Research and inputs by Paruchuri Baswanth Mohan


Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com.

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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