Negotiable instruments are written contracts the value of which may be passed over to a new holder from its original holder. In other words, negotiable instruments are contracts guaranteeing payment to the assignee or a designated party. Such instruments are transferable signed documents that promise to pay the amount of money to the bearer/holder as demanded or in the future at any time. Providing a cheque. to a person is a firm financial commitment that an individual can make to a person with many responsibilities and involvement if they are not honored.
Dishonor of Cheques (Cheque Bounce) happens when the drawer of the negotiable instrument draws a cheque/NI in the bank account held by him without adequate funds. It is consider a criminal offense under Section 138 of the Negotiable Instruments Act, 1881. With a sentence of up to one year or fine double the value of the dishonored cheque, or both.[1] Sub-section (a) of Section 138, read with the Reserve Bank of India Circular pass in November 2011. It specifies that the validity of a cheque shall only last up to three months.
Impact of COVID-19
As a result of Lockdown due to COVID-19; many individuals have not been able to present the cheque receive by them. A lot of them has cross the limitation period also for the same. This will in turn allow many cheque drawer to escape from liability as the term has expired for the same.
On March 23, the Supreme Court had use its extraordinary powers under Article 142. It is to lift the limitation period for all cases across tribunals. And courts until further notice to obviate difficulties and ensure that lawyers/litigants do not have to come physically to file proceedings. But these or moratorium given by doesn’t concern with cheque bounces directly. Hence lenders are still free to invoke proceedings under Section 138 for credit transactions.[2]
Due to unemployment due to lockdown many are not able to repay their loan amount also. There are three segments of borrowers that are of concern. First, the micro, small and medium-sized companies which, unlike the larger corporations, do not have the financial ability.[3]
RBI’s Notice
Notification on March 27, 2020[4] by RBI has granted all term loan debtors the option of a 3 months moratorium on loan repayments for installments due in falling due between March 1, 2020, and May 31, 2020 with the guarantee that their respective credit scores will not be affected. This refers to commercial banks, national rural banks, main (urban) cooperative banks/state cooperative banks/district central cooperative banks, financial institutions, and NBFCs.
But even with the relief given, it is given that Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. And the plea has been file against the same in Supreme Court. It has sought guidance from the Center and RBI to explain that no bank and financial institution would charge any interest. It accrued interest on the outstanding sum to the borrower for the moratorium duration.[5]
Advocate Amit Sahni who has filed the plea has stated the RBI circular is “eyewash as it provides that the interest shall be chargeable during the moratorium period and it makes no sense in paying additional interest along with the regular EMIs”.[6]
CONCLUSION
It can be said that currently no provision covers the situation of cheque bounce cases in India. During this adverse occurrence that could not have been adequately foreseen, debtors/drawers are subject to future criminal and civil action in the absence of a well-established defense of force majeure. While RBI has passed some form of relief under the March 27 circular, there is still criticism on it. Experts have said this is not a blanket ban by the RBI as it is the discretion of the lenders to implement this. A clear cut ordinance is required in India to mitigate this relevant issue.
References:
[1] Dishonour of Cheque, https://www.myadvo.in/blog/Legal-implications-of-cheque-bounce-in-India/
[2]Chequemate? Negotiable Instruments and the impact of COVID-19
[3] Coronavirus lockdown could set back India’s economic recovery as banks worry about bad loanshttps://www.cnbc.com/2020/05/05/coronavirus-locdown-india-banks-face-rising-levels-of-bad-debt-loans.html
[4]COVID-19 –Regulatory Package (Revised)https://m.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=11835
[5] Plea in SC challenging RBI circular on 3-month moratorium on loan repayment,
[6] ibid
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