Guidelines set for cases on cheque bouncing

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Presenting a cheque that bounces and sitting on the amount while the case winds its way through various courts, before settling out of court and finally paying up will no longer be free of cost.

A graded scheme of costs that will be imposed on parties who unduly delay paying up when their cheques bounce was recently outlined by the Supreme Court while responding to an appeal in Damodar S Prabhu v Sayed Babalal H.

Accordingly, settling out of court while a case is at a trial court will continue to be free of cost and the defaulter would pay only the principal amount with applicable interest. But if a conviction has been reached by the trial court and the defaulter wants to settle at the district court, the cost of doing so will be 10% of the cheque amount. Similarly, if the defaulter tries to settle while appealing the case at the high court or Supreme Court, they would pay 15% or 20% of the cheque amount respectively.

The Supreme Court used this judgment to also act against complaints regarding cheque bouncing for a single transaction being filed in multiple jurisdictions. It directed that it be made mandatory for the complainants to submit a sworn affidavit stating that no other complaint has been filed in any other court for the same transaction.

There had been an enormous rush of cheque bouncing cases after 1989 when section 138 was introduced into the Negotiable Instruments Act, 1881, and cheque bouncing was made a penal offence. A November 2008 report of the Law Commission reported over 3.8 million cheque bouncing cases pending before various courts across the country. This pioneering judgment should help clear up some of these cases.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] or [email protected] Readers should not act on the basis of this information without seeking professional legal advice.