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Cheque Bounce may no longer put you in Jail

The government will soon make an amendment in the Negotiable Instruments (NI) Act for cheque bounce that will restrict banks from dragging a person to court. All such cases, after the changes come into effect, will have to be decided only through arbitration, conciliation or settlement by Lok Adalats.

It is estimated that more than 30% of all the pending cases in courts across the country are either related to cheque bounce or traffic challans. The proposed amendment in the NI Act has been recently suggested by an inter-ministerial group (IMG), which was set up last year to make suggestions for necessary policy and legislative changes to deal with a large number of cases pending in various courts.

The law ministry is working closely with the finance ministry and the surface transport ministry to make suitable changes in the law and cases falling under both categories (cheque bounce and traffic challans) will be ineligible to be taken to courts unless some other criminal intent is alleged.

The changes in the NI Act will make it compulsory for the disputing parties to resolve the matter through alternate dispute resolution mechanism.

“The use of alternate dispute resolution mechanism on the lines of Section 89 of the Code of Civil Procedure, through arbitration; conciliation; judicial settlement including settlement through Lok Adalat of mediation may be made compulsory in cheque bounce cases by making suitable amendments in the negotiable instruments act,” the IMG recommendation said.

The IMG report, being implemented by the finance ministry, said a summary procedure for dealing with cheque bounce cases as a schedule of procedure may be codified, and developed by the department of financial services. The same may suitably be incorporated in the Negotiable Instruments Act, it added.

Bank Draft Vs Certified Cheques

BANK DRAFTS :

A bank draft is an order to pay a sum of money on demand. It is addressed by a banker either to itself or to another banker and drawn on its head office or at a branch. It is issued and signed by two authorized signing officers of the bank; one being a “counter signature”. Once “signed”, bank drafts become a statutory obligation of the signing bank and are irrevocable.

Particulars Required for a bank draft are: The date, amount payable, and payee’s name must be typed on the draft prior to its delivery. It can be payable to a customer or creditor. On purchasing, the amount paid is placed in a special reserve account. When presented for payment, funds are withdrawn or collected from that account. The item is then collected through the ACSS. Not a Guarantee of Payment, although bank drafts are substitutes for cash, they cannot always be converted to cash immediately on deposit to a holder’s bank and are not a guarantee of payment. A collecting bank must be certain that the signatures are genuine and authorized. Funds are not realized until actual collection. The amount of the draft or the geographical distance between the place of issue and deposit, are factors that can increase/decrease the time of collection. Many devices exist for discovering counterfeit banknotes; however no corresponding devices exist for the discovery of forged or unauthorized signatures on a bank draft or certified cheque.

CERTIFIED CHEQUES:

“Certification” is the name given to the marking of a cheque by a bank to show that its customer has an existing account with sufficient funds to meet the drawn amount. Certification is demonstrated by a mark on the cheque, typically a stamp marked “certified”. It must be signed by a bank or other financial institution. Certified cheques are not a guarantee of payment; items bearing forged endorsements can be returned for up to six years.

Particulars of Payment Certified cheques are typically drawn by a bank’s regular customer and payable to a creditor or an endorsee. They are payable on demand and collected through the ACSS. The customer’s account is then debited and the amount set aside into a special suspense account. When presented for payment through the ACSS, the amount is charged to that account.

A bank may be able to refuse payment on a certified cheque, if it can be demonstrated that a payee would be unjustly enriched by payment. Certification therefore is a direct promise of a bank to pay, independent of a customer’s obligation to pay, even where a bank has mistakenly certified a cheque.

Verification is required whether funds are direct deposited by bank draft or certified cheque, there is no appreciable difference in risk in comparison to closings in the past. Remember however that financial institutions may not post funds to a trust account until the next business day and sometimes later if the other lawyer’s financial institution is not one of the major institutions, or, if a cheque is drawn on an account in another region of the country. Verification of both items is necessary as the ACSS does not guarantee payment by bank draft or certified cheque.