Treasury Department Considers Steps Like Automatic Debit from Other Publisher A/Cs to Curb Cases of Checkback Returns

New Delhi: The Ministry of Finance is considering several steps, such as dipping into other accounts of a check issuer and banning the opening of new accounts of violators to effectively deal with cases of bounced checks clogging the justice system.

Many suggestions were made at a high-level meeting recently convened by the ministry to address the high rate of check bounced cases.

Some of the steps suggested before taking legal action included debiting another account from the check issuer if his or her account is underfunded to honor the instrument, sources said.

The other suggestions were to treat the return of checks as default and thus report to credit reference companies for the necessary lowering of the score, the sources said, and a proper legal position would be taken before accepting these suggestions.

If these suggestions are implemented, it would help to enforce the payment of checks by the payer without going to court and also force him/her to pay through technology.

These measures would make it easier to do business and prevent people from willfully issuing checks even if their accounts have insufficient funds.

Proposed steps could be implemented by integrating the data on the banks, sources said.

Standard Operating Procedure (SOP) for direct debit and other suggestions are required.

Section 138 of the Negotiable Instruments Act, 1881 deals with dishonor from checks due to insufficient funds in the account.

A claim for check fraud under Section 138 of the Act may be filed with the court in the place where the beneficiary’s bank is located. It is a criminal offense with a fine of up to twice the amount of the check or imprisonment for up to two years or both.

When an issuer presents a check to the bank for payment and it is returned unpaid by the bank due to insufficient funds, the check would have been returned.

Buoyed by the high number of pending check bounce cases, the Supreme Court had formed a committee with a mandate to propose steps for early removal of about 35 lakh pending cases across the country.

During the hearing, the Center had “in principle” accepted the need to create additional courts to handle such cases.

The committee established by the SC had recommended procedural reforms, full use of technology and infrastructure expansion to ensure that disputes are resolved quickly.

In addition, the panel suggested some changes to the negotiable instruments Act, 1881.

Trade associations have called for changes to the check-back law for swift removal of such cases.

Industry body PHDCCI recently urged the Treasury Department to take measures, such as a mandatory suspension of bank withdrawals for a few days, to hold check issuers accountable for their actions in cases of check bounce.

The government should enact a law that from the date of the check desecration, the dispute between the two parties must be settled through mediation within 90 days, the chamber has proposed.

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