Legislation on Dishonour of Cheque

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The Section 4 of Banking Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 (Act 66 of 1988) inserted the Chapter XVII of the Negotiable Instruments Act, 1881. This chapter contains the provisions relating to penalties in the event of the dishonour of certain checks for shortage of funds in the accounts of person who issued the cheque.

The statement of objects and reasons as appended by the Bill (lok Sabha Bill no. 49 of 1988,published in the Gazette of India in Issue No. 49 dated 05-09-1988), the corresponding clause (XI) reads as follows : –

“To strengthen the acceptability of cheques in the settlement of liabilities by making the drawer responsible for penalties in the event of cheque bouncing due to insufficient funds in the accounts or on the grounds that it exceeds the measures taken by the drawer, with the appropriate precautions for preventing the persecution of honest drawers.”

The provisions relating to the dishonour of cheques were introduced with laudable public policy behind it. It aims to prevent or reduce wrongdoing that can affect financial transactions, and therefore trade and commerce or business and ultimately the economy of the country.

The provisions relating to the refusal of checks were introduced with laudable public policy. Amendment Law 66 of 1988 received the President’s consent on December 16, 1988 and entered into force from 1st April 1989.

The law was published in the Indian Gazette, Extraordinary, Part II, Section I, in issue no. 90, of December 19, 1988.