The Union government has approved an amendment to a law that allows for interim compensation to be paid in cheque dishonour cases as a measure to bar unscrupulous elements from holding on to payments as a result of long trials.
The Negotiable Instrument Act will be modified to allow a court to order payment of interim compensation in cases where cheques have bounced as a result of dishonouring parties. The move is seen as a measure to promote a “cash-less” economy.
Cheques play a key role in India’s payments landscape, forming the backbone of trade and commerce.
Interim Compensation To be Granted
Law Minister Ravi Shankar Prasad announced that the amendment to Negotiable Instruments Act, 1881 has been approved this week but failed to provide any further details
The amendment is likely to be tabled in the ongoing Winter Session of Parliament.
According to sources, under the changed law, the court can order interim compensation amounting to part of the cheque amount to the payee of the cheque. In case the drawer of the cheque is acquitted, the court may ask the payee to return the money given as interim compensation with interest.
Appellate courts would similarly be enabled to ask the appellant to deposit a portion of compensation that has been awarded by the trial court when filing the appeal.
The amendment is aimed at helping trade and commerce sectors , particularly the MSME, and also to enhance the credibility of the cheque as a financial instrument, according to sources.
Erodes Credibility of the Instrument
Dishonour of cheques as a result of inadequate funds available in drawer’s account or for other reasons causes a lot of issues in the business and MSME sectors. Payees are inconvenient as a result and it “erodes the credibility” of cheques.
The proposal to amend the Negotiable Instruments Act was considered by the Cabinet to “address various representations” made by both the public and the trading community who had highlighted “injustice caused to payees” due to the long pendency of cheque dishonour cases.
According to sources, representations by these groups pointed out the delay tactics adopted by unscrupulous drawers who would file appeals and obtain a stay. Subsequently the payee would be required to spend a lot of time and resources in court proceeding so as to obtain the money due to him.
