Analysis on Major Amendments of The Negotiable Instruments Act & its Landmark Judgements - Khushi
Updated: Nov 22, 2021
General Introduction
The word ‘Negotiable’ itself defines its meaning as transferable or crossable from one party to another and the word ‘instrument’ determines the usage of promissory notes. Thus, negotiable instruments are those signed documents that promise a sum of money to a particular person and at the same time allows that person/ holder to draw funds or cash and utilize them in a certain manner at a future date or on-demand. Our day to day transactions including the usage of cheques, money orders, etc is the example of Negotiable Instruments.
The Negotiable Instruments Act
According to Section 13[1] of the Act, “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” It applies to all the Indian states and Union Territories but nothing in this act contained will affect the Indian Paper Currency Act[2], 1871, Section 21, or affects any local usage relating to any instrument in an oriental language.
The following are the major types of Negotiable Instruments-
Inland Instruments
Foreign Instruments
Bank
Finance companies(listed) Draft.
The Modern Day Reforms
Before the trend of smartphones and online payment systems, people preferred to carry a small piece of paper known as a cheque instead of having cash with them. This general usage of cheques by individuals often resulted in the civil wrong of cheque dishonor. Before 1988 there were no provisions in this direction but to make the system more accountable and to keep a check on the defaulters, the 1881 act was amended bypassing the Negotiable Instruments Act of 1988 and made it a criminal offense under Chapter XVII [3] and inserted a provision to charge a defaulter with the penalty. Later on, the defaults like a signature mismatch, stop payment, etc were also covered under this.
To curb the further loopholes presented in the Act, the parliament passed the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.[4] This modification resulted in the insertion of five new provisions from Section 143 to 147 which came into force on 6 Feb 2003 but the Act kept on amending till 2018 to ensure the trust among the individuals.
In commercial transactions, payment via cheques plays a crucial role. Several attempts against the offense of dishonor of cheques proved failed over time due to its several rooted factors. To restrict its existence fully the Union Parliament again passed The Negotiable Instruments (Amendment) Act in 2017 which was given the presidential asset on 2 august 2018 and came up with the following provisions which talk about the interim compensation-
❖ Section 143A
The new addition of Section 143A [5] emphasizes interim compensation to be paid to the complainant by the issuer if he suffers from a cheque dishonored due to insufficiency of funds in the account as per Section 138.[6]
The compensation amount should not exceed 20% of the amount mentioned in the cheque and the same amount need to be paid within 60 days after the court has passed its order or if the court would find any reasonable grounds of delay or non-payment of the amount in the given time limit then it can provide an additional time of 30 days to the parties but of the issuer of the cheque is acquitted, the issuee has to repay the compensatory amount with the interest published by RBI to the issuer within the prescribed period same as stated above.
❖ Section 148
The safeguards provided under Section 143A can be extended during appeals made by the issuer of cheque and Section 148 [7] gives power to the appellate court to order the issuer to deposit an amount during the period of conviction and this deposited amount needs to be a minimum of 20% of the compensation order by the Magistrate court. Furthermore, if the defaulter/appellant is acquitted from the offense the same process of repayment needs to be followed as mentioned under Section 143A.
Significance of the Amendments
According to the 213th Law Commission Report, [8] about 20% of cases in our judiciary are of cheque bounce and resulted in huge delays despite various attempts of alterations.
To deal with an injustice that the payee suffers in terms of time and money during the court proceeding the above-mentioned amendments have been brought. These amended provisions ensure trust among the society in the field of litigation plus provide temporary relief to the sufferer in form of compensation too. The objectives and reasons of the Negotiable Instruments Act, 2017 states that the amendment had been introduced "to address the issue of undue delay in the final resolution of cheque dishonor cases to provide relief to payees of dishonored cheques and to discourage frivolous and unnecessary litigation which would save time and money".
The Landmark Judgments
It is necessary to throw light on landmark judgments due to their sustainable and ever-growing nature.
❖ Dalmia Cements v. Galaxy Trading Agencies
The case of M/s. Dalmia Cement (Bharat) Ltd. v. M/s.Galaxy Traders & Agencies Ltd. & Ors. [9] talks about the reasons behind the validation of Section 138 of the Negotiable Instruments where the Supreme Court protected the complainant’s side and provided him with just and fair compensation and took action against the respondent according to the procedure mentioned under the Act. Thus, the court claimed that the objectives of the said act need to be fulfilled when it comes to the violation of one's legal right.
❖ Canara Bank v. Canara Sales Corporation
The case of Canara Bank v. Canara Sales Corporation (1987) [10] throws light on the shared relation of bankers with their customers when it comes to fraudulent activities done by either party.
Under this case, the forgery was committed and on that behalf, the recovery suit was also filed by the respondent. Thus, the court held bankers more responsible for being negligent and ordered them to compensate the sufferer company.
❖ M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta
Under the case of M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta (2017),[11] Supreme Court passed its verdict by keeping Section 138 of Negotiable Instruments in one hand and other statutory provisions of Chapter XVII of the said act in another.
The case started with the issue of cheques dishonored due to insufficient balance in the issuer’s account. Later the issuer’s company failed to compensate the other party and committed an offense under Section 138. After the due date passed, the Director of the company was willing to compensate the complainant but he refused to accept the money, and here the company sued against him for compoundable offences under Section 147 of the same act. Hence, the High Court rejected the plea because the plea requires the consent of both the parties and compensates the complainant with the expected amount.
The cases such as Harman Electronics Pvt. Ltd. v National Panasonic India Pvt. Ltd. ( 2004) [12] and Smt. Asha Baldwa v. Ram Gopal [13] also took place on the grounds stated above.
Due to overburdened cases into the field of Negotiable Instruments, in 2017, the Delhi High Court in the case of Mayawati v. Yogesh Kumar Gosain [14] passed a verdict and introduced a mid-way called the Alternate Dispute Resolution Mechanism which will solve the cases through different perspectives and in a speedy manner.
Moreover, recently our Finance Ministry has advised decriminalizing several white-collar crimes in June 2020 just to ease the working of judicial officials. Plus they also reduce the criminal status of cheque dishonoring under Section 138 of the Negotiable Instruments Act.
Many trades and business associations fought against this ruling including the Confederation of All-India Traders (CAIT), the Indian Banks' Association and Finance Industry Development Council (FIDC), and the Federation of Industrial and Commercial Organisation (FICO).
Conclusion
Undoubtedly, these multiple amendments to the date represent a clear picture of our overloaded cases into the field of litigation and the constant tussle of executives in figuring out the best speedy way of solving them. The cases of land acquisition, murders, robbery are already huge in pendency and the issues of dishonor of cheques have added more file to it.
Being parliamentarians and jurists they surely seek the legislative solution but on the other side, it is the responsibility of a layman to perform reasonable conduct during the transactions to burdenless the judicial bodies.
References
[1] Section 13 in The Negotiable Instruments Act, 1881, https://indiankanoon.org/doc/1275897/#:~:text=%E2%80%94A%20promissory%20note%2C%20bill%20of,it%20shall%20not%20be%20transferable.
[2]Paper Currency Act, 1871, https://www.casemine.com/act/in/5a979dcc4a93263ca60b7435
[3] Chapter XVII – Of Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts, https://devgan.in/nia/chapter_17.php
[4] The Negotiable Instruments (Amendment And Miscellaneous Provisions) Act, 2002, https://indiankanoon.org/doc/1499382/
[5] Section 143 in The Negotiable Instruments Act
[6] Section 138 in The Negotiable Instruments Act
[7] Section 148 in The Negotiable Instruments Act
[8] Law Commission Report No. 213- Fast Track Magisterial Courts for Dishonoured Cheque Cases, https://www.latestlaws.com/library/law-commission-of-india-reports/law-commission-report-no-213-fast-track-magisterial-courts-for-dishonoured-cheque-cases/
[9] Dalmia Cement (Bharat) Ltd vs M/S.Galaxy Trades & Agencies Ltd. ... on 19 January, 2001, https://indiankanoon.org/doc/60864/
[10] Canara Bank vs Canara Sales Corporation & Ors on 22 April, 1987, https://indiankanoon.org/doc/1838427/
[11] M/S Meters And Instruments ... vs Kanchan Mehta on 5 October, 2017, https://indiankanoon.org/doc/160848531/
[12] Harman Electronics P. Ltd. vs National Panasonic India Ltd. on 13 February, 2004, https://indiankanoon.org/doc/1982904/
[13] Smt.Asha vs Ram Gopal & Anr on 13 September, 2017, https://indiankanoon.org/doc/101660222/
[14] Dayawati vs Yogesh Kumar Gosain on 17 October, 2017, https://indiankanoon.org/doc/171370472/