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August 2010

HC ruling on bounced cheques rattles traders

By Raman Jokhakar
Tarunkumar G. Singhal
Chartered Accountants
Reading Time 1 mins

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66 HC ruling on bounced cheques rattles traders

The Bombay High Court judgment that the drawer of a bounced
cheque cannot be prosecuted if the instrument was issued only as a security has
thrown traders into a tizzy.

Suppliers who were used to granting credit for series of
transactions against a single cheque are now unsure of how good this security
is. Debtors on their part while issuing the cheque are making it in the covering
letter that the cheque is being issued as a security and not to meet any debt
obligation.

In the past, lenders have used this Act to initiate criminal
prosecution against borrowers who have found it difficult to pay their
instalments. Now debtors are taking shelter under the judgment on cheques issued
as security.

The Bombay High Court held that the debtor cannot be
prosecuted under the Negotiable Instruments Act if cheques, issued only as
collateral security for loan, bounces. According to news reports, the judgment
was issued by Justice P. R. Borkar on a petition filed by Ahmednagar-based
Ramkrishna Urban Co-operative Credit Society against a debtor.

(Source : The Economic Times, dated 13-3-2010)

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