Cheque Bounce Defined
Cheque bounce, or the dishonor of a cheque, occurs when a bank refuses to pay the drawn amount to the payee for various reasons, including insufficient funds, overwriting, mismatched signature, and other discrepancies. This situation is regulated by two key laws in Nepal: the Negotiable Instruments Act, 2034 and the Banking Offense and Punishment Act, 2064 which outline legal remedies for cheque bounce cases.
In Nepal, cheque bounce is a common issue, particularly affecting businesses and individuals dealing with substantial sums. The refusal by a bank to honor a cheque due to insufficient funds or other reasons is considered a dishonor of the cheque, and legal procedures, governed by the mentioned acts, are in place to address and remedy such situations. Understanding these legal processes is crucial in a landscape where cheque transactions and related crimes are on the rise, ensuring individuals are well-equipped to navigate and resolve cheque bounce issues in Nepal.
Aggrieved Party has two kinds of remedy
Remedy under Negotiable Instrument Act, 2034 as a Civil Case
The Negotiable Instruments Act, 2034 outlines various circumstances that constitute the dishonor of a cheque, including overwritten cheques, mismatched or absent signatures, unclear payee information, discrepancies in amounts written in words and figures, absence of account number, stoppage of payment by the drawer, court orders to stop payment, closure of the drawer’s account, insufficient funds, and notification of the drawer’s death, lunacy, or insolvency. Additionally, a cheque is considered bounced if alterations are not verified by the drawer or if the cheque lacks a specified date or has expired.
According to the Act, a cheque bounce occurs when a person intentionally transfers a cheque to someone without sufficient funds in the bank. The drawer is then liable to pay the amount mentioned in the cheque, along with interest as per Section 107 of the Act. The punishment for such an offense includes imprisonment for up to three months or a fine of up to three thousand rupees, or both under Section 107A of the Act. Cheque bounce under Negotiable Instrument Act, 2034 is treated as an individual party offense, and the aggrieved party must file a complaint in the concerned District Court within five years of the incident as per Section 108 of the Act.
The legal process involves filing a statement of claim, response by the defendant, evidence collection, witness examination, a final decision by the district court, and the option to appeal to the higher court. Process and remedies of Cheque dishonoring:
- Filing of a statement of claim (फिरादपत्र) by the party
- Reply by another party on the statement of claim (प्रतिउत्तरपत्र)
- Collection of evidence and examination of witnesses
- Hearing and final decision by the district court
- Filing an appeal at a high court, if any of the parties is not satisfied with the decision rendered by the district court.
Remedy under Banking Offense Act, 2064 as a Criminal Case
Section 3(c) of the Banking Offense and Punishment Act, 2008 categorizes knowingly drawing a cheque from an account with insufficient balance as an act of banking offense.
Cheque bounce is treated as a state party offense, requiring the filing of a First Information Report (FIR) within one year as per Section 17(1). Subsequently, a charge sheet is filed in the high court, and the state bears procedural expenses. The process for filing the case in the concerned high court is listed below:
- Submission of the first information report (FIR) at the concerned police station
- Police will carry out an investigation, which they will submit to a government attorney.
- Filing of a charge sheet at the high court by the government attorney
- Hearing for bail at the high court: It is the first hearing in that particular case
- Examination of witnesses
- Hearing when the high court will render its decision
- Filing an appeal at the Supreme Court, if any of the parties is not satisfied with the decision rendered by the high court
Regarding punishment, under Section 15 of the Act, if a person commits any offense of knowingly drawing the amount from an account with insufficient balance, such person shall be punished with a fine equal to the amount under consideration and imprisonment for upto three months.
Which remedy to choose?
In light of the recent interpretation by the Supreme Court in the case of Nirmala Sodari v Nepal Government (which we will discuss in detail below), it has been emphasized that, given the existence of two distinct legal avenues for remedies in cases of cheque bounce, the selection of a specific procedure should be carefully undertaken, taking into consideration both the protection of the rights of the aggrieved party and the intended objective of addressing cheque bounce incidents.
Concerning the safeguarding of the rights of the aggrieved party, opting for legal recourse under the Negotiable Instruments Act enables the aggrieved party to recover interest on the drawn amount, a provision not extended by the Banking Offense and Punishment Act, 2064. Additionally, when pursuing the case as a state party offense, the court initially emphasizes imposing fines on the defendant. Upon securing a fine, a subsequent process is initiated for recovering the amount involved in the transaction, irrespective of the fine imposed. In contrast, charges filed under the Negotiable Instruments Act directly facilitate the recovery of the amount without reliance on fines. Despite this judicial interpretation, there have been no recent amendments to the existing laws. Nevertheless, considering these nuanced aspects, the selection of the most appropriate legal avenue becomes imperative.
Nirmala Sodari v/s Government of Nepal
The facts of the case
Nirmala Sodari, who took a loan from Ganesh Rawal and gave him two cheques from her accounts in SBI Bank and Siddharth Bank as a repayment, which were dishonored due to insufficient balance. The issue of the case is whether the appellant’s act of cutting a check without sufficient funds in her account constitutes a banking offense under Section 3(c) of the Banking Offenses and Punishment Act, 2064 or a dishonor of check under Section 107A of the Negotiable Instruments Act, 2034, and which law should be applied to provide relief to the victim and punishment to the offender.
Decision from Dipayal High Court
The High Court of Dipayal, Mahendranagar bench, found Nirmala Sodari guilty of a banking offense under Section 3(c) of the Banking Offenses and Punishment Act, 2064 and sentenced her to one month imprisonment and a fine equal to the amount of loan under consideration. The court also ordered the defendant to pay the victim the amount of loan with 15% interest per annum from the date of filing the complaint until the date of payment.
Decision from Joint Bench of Supreme Court
Nirmala Sodari appealed the case to the Supreme Court. The joint bench of the Supreme Court dismissed the charge sheet filed by the Government of Nepal under the Banking Offense Act, 2064. The court held that the Negotiable Instruments Act, 2034 was a special law that prevailed over the general law of the Banking Offenses and Punishment Act, 2064 and thus reversed the decision from the Dipayal High Court.
Decision from Full Bench of Supreme Court
The Government of Nepal applied to the Full Bench for the review of the Decision. The Supreme Court full bench upheld the decision of the Dipayal High Court which found the defendant guilty of a banking offense under Section 3(c) of the Banking Offenses and Punishment Act, 2064 and sentenced her to one month imprisonment and a fine equal to the amount of loan under consideration.
The court held that the defendant’s act of cutting a check without sufficient funds in her account affected not only the relationship between the parties but also the trust and credibility of the bank and the financial system, and therefore, it can be considered as a serious offense requiring state party defendant. The court also observed that the victim had the freedom to choose the legal remedy among the laws in force, and the court could not deny the legal remedy chosen by the victim. The court also suggested that the Government of Nepal could adopt the process of giving approval for the current settlement agreement between the parties at the initiative of the parties, if possible.
Principle of Beneficial Construction
The Principle of Beneficial Construction is a rule of interpretation that says that in cases of ambiguity, the construction that advances the beneficial purpose of the law should be preferred over the one that defeats the purpose. In other words, the court should try to uphold the validity and effectiveness of the law, rather than finding faults or loopholes in it.
In the context of this case, the principle is relevant because there are two laws that deal with the issue of check dishonor: the Banking Offenses and Punishment Act, 2064 and the Negotiable Instruments Act, 20342. The former law is more serious and provides for imprisonment and fine for the offender – creating a criminal liability, while the latter law is more lenient and provides for compensation and interest for the victim – creating a civil liability.
According to the principle of beneficial construction, the court should choose the law that is more beneficial for the victim and the society, and that fulfills the legislative intent and purpose of the law. The court should also respect the choice of the victim, who can seek remedy under either law, depending on the circumstances and the nature of the offense. The court should not interfere with the validity or applicability of the law, unless it is clearly unconstitutional or illegal. The court should also avoid creating confusion or inconsistency in the legal system, and should harmonize the two laws as much as possible especially in the context when both of them are equally valid laws.
Principle of Judicial Self Restraint
The principle of judicial self-restraint is the idea that the courts should exercise caution and deference when reviewing the laws made by the legislature, which represents the will of the people. The courts should not interfere with the legislative process or invalidate the laws unless they are clearly unconstitutional or illegal. The courts should respect the separation of powers and the balance of interests among the judiciary, the legislature and the executive.
The Government attorneys invoked the principle of judicial self-restraint in the context of this case. They contended that the court should refrain from declaring the Banking Offences and Punishment Act, 2064, as illegal or void. Their argument centered on the premise that this legislation was enacted by the parliament with the specific intent of safeguarding the banking and financial system from fraudulent activities and risks. The legal counsel asserted that the court should limit its consideration to the chosen legal avenue of the victim, who initiated the complaint under the Banking Offences and Punishment Act, 2064. Moreover, they advocated against the application of the Negotiable Instruments Act, 2034, which was perceived as more favorable to the defendant. This stance aimed to challenge and nullify the decision rendered by the Joint Bench of the Supreme Court in favor of the defendant before the Full Bench.
Principle of Compoundability
The principle of compoundability is a legal principle that allows certain criminal offenses to be settled out of court by the consent of the parties involved. It means that the victim of the offense can agree to drop the charges or accept compensation from the offender, and the court can approve such a settlement and acquit the offender. The principle of compoundability is based on the idea that some offenses are of a personal nature and do not affect the public interest or order, and therefore can be resolved by mutual understanding and reconciliation.
In the context of this case, the legal doctrine of compoundability is applicable to the offense of check dishonor as delineated under the Negotiable Instruments Act, 2034. This offense pertains to the financial transaction between the issuer and the holder of the check, and it does not directly impinge upon the interests of the bank or the government. Consequently, the aggrieved party, confronted with the offense of check dishonor, retains the prerogative to opt for an amicable settlement with the alleged offender by receiving the stipulated amount of the check along with interest.
Moreover, it is imperative to note that Section 117 of the National Criminal Procedure Act, 2074, similarly extends the principle of compoundability to the offense of banking fraud as delineated under the Banking Offenses and Punishment Act, 2064. In light of this statutory provision, the right of the victim to pursue the legal course of action that aligns with their objectives should not be precluded or denied. In accordance with this principle, the court is empowered to sanction and effectuate such a settlement, leading to the dismissal of the case.