Thursday, December 6, 2012

Cheque bounce cases: FinMin mulls ‘Lok Adalat type’ redress mechanism

To cut down the number of cheque-dishonour cases, the Finance Ministry is looking at an alternative dispute resolution mechanism, such as a Lok Adalat.
The idea is to consider prosecution under Section 138 of the Negotiable Instruments (NI) Act only if the alternative mechanism too fails. Section 138 deals with penalties in case of dishonour of cheques due to insufficient funds in the bank account of the drawer.
Further, cheques taken as security without stating the amount of debt may be excluded from the purview of the Section.
These measures were suggested to the Finance Ministry by a committee constituted by the Ministry of Law and Justice.
Under Section138, the drawer of the cheque, which has been returned unpaid by a bank because money in the account is insufficient, is deemed to have committed an offence that is punishable with imprisonment up to two years, or with fine that may be up to twice the amount of the cheque, or both.


Bankers, however, feel that Section 138 has served them well and there is no need to amend it.
“The existing provisions which make cheque bouncing an offence is facilitating recovery of loans and helping reduce bad loans of banks,” said a banker in the know of the development.
Most cases under Section 138 relate to recovery of loan defaults that are less than Rs 10 lakh. For the purpose of recovery of such loans civil suits have to be filed by banks.
Since the judicial proceedings take a long time, initiating action and proceedings under the Section is facilitating speedy recovery, said the banker.

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