The Negotiable Instruments Act, 1881 (NI Act) was enacted on 09 December 1881 and came into force on 01 March 1882 with a view to regulate the exchange of negotiable instruments such as promissory notes, bill of exchange and cheques. The NI Act, since its enactment, had previously been amended in 1989 and then in the year 2002. Section 138 of the NI Act was introduced by way of the Banking, Public Financial Institutions and Negotiable Instruments Law (Amendment) Act, 1988 (Act 66 of 1988) with a view to safeguard the faith of the creditor in the drawer of the cheque and ensure greater vigilance in financial matters. While Section 138 of the NI Act helped ensure greater vigilance with regard to payment made through cheques, its effect was diluted due to the deceitful delay tactics adopted by the drawers to delay their liability.

The Negotiable Instruments (Amendment) Act, 2018 (Amendment) received the assent of the President on2nd August 2018. By way of this Amendment, Section 143A and Section 148 have been inserted in the NI Act, to ensure that the payee of a dishonoured cheque is offered greater protection and to discourage frivolous and unnecessary litigation, saving the time and money of the litigating parties as well as of the Courts. The Amendment provides the Trial Court with the power to direct the drawer of dishonoured cheques to pay an interim compensation to the complainant, which amount of interim compensation shall not exceed 20% of the cheque amount. The Amendment also empowers the Appellate Court to order deposit of a sum which shall be minimum of 20% of the fine or compensation awarded by the Trial Court.

KEY HIGHLIGHTS OF THE AMENDMENT

  1. TRIAL STAGE
  • Insertion of Section 143A to the NI Act: The Amendment has introduced Section 143A to the NI Act which acts as a safeguard, protecting the interest of the payees of dishonoured cheques.
  • Interim Compensation: Section 143A of the Amendment provides the Court trying an offence under Section 138 NI Act, the power to order the drawer of dishonoured cheque to pay interim compensation to the payee of the dishonoured cheque. The interim compensation shall be payable upon framing of charges.
  • Timeline: The interim compensation is payable within a period of 60 days from the date on which an order is passed by the Court for payment of interim compensation. The time period can further be extended for a period of 30 days, subject to sufficient cause being shown by the payee of the dishonoured cheque for such extension.
  • Quantum on interim compensation: The quantum of interim compensation payable during the trial period shall not exceed 20% of the total cheque amount.
  • Refund of interim compensation in case of acquittal: The Amendment ensures that the interest of drawers of dishonoured cheques is not unduly prejudiced in cases of inadvertent error and entitles the drawer to a refund of the interim compensation paid, along with interest at the bank rate published by the Reserve Bank of India (RBI) during the beginning of the relevant year, within a period of 60 days from the date of the order of the Court for refund. The time period for refund can further be extended for a period of 30 days, subject to sufficient cause being shown by the payee of the dishonoured cheque for such extension.
  • Mode of recovery of interim compensation: The Amendment provides for recovery of the interim compensation paid by the drawer of the cheques in the form of a fine under Section 421 of CrPC. Similarly, in cases where the Court imposes a fine upon the drawer of the dishonoured cheque under Section 138 of the NI Act or awards any compensation to the payee of the dishonoured cheque under Section 357 of CrPC, the amount of interim compensation already paid by the drawee in the form of interim compensation shall be reduced from such fine / compensation.
  1. APPELLATE STAGE
  • Insertion of Section 148 to the NI Act: The Amendment has also introduced Section 148 to the NI Act, which has been introduced to extend protection to payees of the dishonoured cheques against frivolous and ill-conceived appeals by the drawers of dishonoured cheques, to delay the payment due to the payee.
  • Amount payable in addition to Interim Compensation: Section 148 of the Amendment also empowers the Appellate Court in a case of appeal against conviction under Section 138 NI Act to order the drawer of dishonoured cheque to further deposit a sum in addition to the interim compensation paid during the trial stage. The Appellate Court may direct the release of such interim compensation at any stage, during the pendency of the appeal.
  • Quantum of amount: The quantum of such amount payable during the appellate stage shall be not less than 20% of the total amount of fine or compensation awarded by the Trial Court.
  • Timeline: During the appellate stage, the amount is payable within a period of 60 days from the date on which an order is passed by the Court for payment of such amount. The time period can further be extended for a period of 30 days, subject to sufficient cause being shown by the payee of the dishonoured cheque for such extension.
  • Refund of interim compensation in case of acquittal by Appellate Court: The Amendment ensures that the interest of drawers of dishonoured cheques is not unduly prejudiced in cases of inadvertent error and entitles the drawer to refund the amount paid during the appellate stage, along with interest at the bank rate published by the RBI during the beginning of the relevant year, within a period of 60 days from the date of the order of the Appellate Court for refund. The time period for refund can further be extended for a period of 30 days, subject to sufficient cause being shown by the payee of the dishonoured cheque for such extension.

COMMENTS

By introduction of these amendments, the original intent of the legislature, that is,to safeguards the interest of parties entering into commercial transactions is once again strengthened. The Amendment ensures that the interest of the payee of the cheque is not diluted due to time consuming trial and provides for similar interim remedies, such as ones available in civil cases. The Amendment not only ensures that less fraudulent appeals are filed, but also ensures that payees are well insured during such period.

Since the NI Act is a beneficial legislation, in the absence of any provision regarding the prospective or retrospective application of the Amendment, it appears that the Amendment may have retrospective effect and the interim compensation may be awarded by the Trial Court where the charges are yet to be framed by the Trial Court.

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