Beware of bouncing cheques, harsher punishments may be afoot

• The Supreme Court constituted a committee to find ways to reduce cheque bounce cases.
  
• The government received suggestions that include debiting other accounts of the cheque issuer to recover money.
  
• Another suggestion says that the offender could also be prevented from opening other accounts.
  

Cheque bouncing could soon invite harsher punishments like debiting money from other accounts held by the issuer — if the government acts on the many suggestions it received to curtail this practice.

Cheque bouncing is so common in India that the legal system is burdened with millions of such cases.

While cheque bouncing is already a punishable offense, the government is looking to reduce these very incidences by nipping them in the bud. The Supreme Court had constituted a committee in 2021 to reduce these cases that are slowing down the country’s judicial system.

Among the many recommendations received by the government are — setting up a standard operating procedure (SOP) for auto debit in case of a bounce. The government has also invited other suggestions to deal with the cheque bounce menace.

Increased ‘account’ability

Key amongst the suggestions received by the finance ministry include debiting the said bounced amount from other accounts of the cheque issuer – if they hold multiple accounts. The issuer could also be prevented from withdrawing money until the dues are fully recovered.

Apart from this, the government could also treat a bounced cheque as a case of loan default. This would have the dual impact of not only hurting the issuer’s credit score, but also informs lenders about the issuer’s bad financial practices.

These measures are aimed at preventing people from issuing cheques to discharge their payment liabilities, without having sufficient funds in their accounts. This reflects in the number of pending cases of cheque bounce in the legal system – as of May this year, there were over 3.3 million such cases, down from 3.8 million in 2008.

A suggestion by industry body PHDCCI is to prevent cheque issuers from withdrawing funds from their accounts for a few days after issuing a cheque. However, this would also impact the vast majority of people who issue cheques with sufficient or surplus funds in their accounts.

How are cheque bounce cases treated currently?

At the moment, cheque bounce cases are treated just like any other banking transaction. A cheque bouncing due to insufficient funds is not treated as a loan default. This information is not shared with the credit information bureaus, so there is no impact on the issuer’s credit score.

In terms of penalties, too, it varies from bank to bank, and the type of account of the issuer. The fines range from ₹50 to ₹750 per incident.

Under the Negotiable Instruments Act, 1881, a cheque bounce is treated as a criminal offence, punishable with a fine of two times the amount of cheque issued, or imprisonment up to two years, or both.

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