Cheques and balances

The number of criminal cases filed against cheque defaulters has overwhelmed India’s judicial system. One obvious solution is to decriminalise what is often a civil dispute, but lawyers aren’t convinced that’s the answer. George W Russell reports

When the Bank of America announced in January that it had abolished bounced-cheque fees, businesspeople in India must have registered nothing short of shock. While insufficient funds are part and parcel of American life, in India, bouncing a cheque can have dire consequences for the drawer, drawee and the legal system in general.

Section 138 of the Negotiable Instruments Act, 1881, makes a bouncing cheque due to insufficient funds an offence. The legislation not only imposes monetary penalties for the dishonour of cheques, but also sets a term of imprisonment not exceeding two years or a fine that can extend to twice the amount of the cheque, or both.

However, the sheer number of criminal cases filed against cheque defaulters has overwhelmed the Indian judicial system. On Constitution Day in November 2021, Chief Justice NV Ramana sought to highlight how the legislature does not assess the impact of the laws it passes. He used the example of the cheque bouncing law, and said that section 138 only increased the workload of already overburdened magistrates.

The National Judicial Data Grid shows that in 2020, the country’s high courts disposed of fewer than half the number of cases they did in 2019. However, since the number of cases instituted fell only by one-third, the total of pending cases increased. By April 2021, there were about 3.5 million cheque bouncing cases pending under section 138, amounting to nearly 8% of the 45 million criminal cases before the courts.

The coronavirus pandemic, while limiting the courts’ ability to dispose of cases, has only allowed the backlog to worsen. “It has led to a manifold increase in the number of instances of the dishonouring of cheques,” notes Amit Aggarwal, a partner at SNG Partners in New Delhi.

“The unfortunate aspect of the pandemic has been that it impacted adversely not only individuals, but also small and medium-sized businesses, as the liquidity dried up quite quickly and without access to either funds from lenders or payments from clients.”