FinMin supports setting up Lok Adalats to deal with cases of cheque dishonor
By Neelima Shankar
Dec 7, 2012
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Finance Ministry is contemplating to set up alternative means of dispute redressal, on the lines of "Lok Adalats", to deal with the increasing number of cheque bounce cases.

The motive of setting up this new mode of dispute redressal is to ensure prosecution under Section 138 of the Negotiable Instruments (NI) Act of the Indian penal code in case the alternative mechanism is also not successful. It is to be noted that this section deals with giving penalties in cheque bouncing cases, where there are inadequate funds in the accounts of the person drawing the cheque.

In addition to this, cheques which have been drawn as a form of security without any specified amount of debt will be excluded from being dealt with under this section. Reportedly, a panel formed by the Ministry of Law and Justice had recommended these measures to the Finance Ministry.

Under Section 138 of the Negotiable Instruments (NI) Act, it is a punishable offence to draw a cheque with an amount which is more than the amount present in the bank account. If a cheque is dishonored by a bank due to insufficient funds in the bank account, then it is treated as a criminal offence and the drawer of the cheque can be imprisoned for up to 2 years or can be fined with an amount which is twice the amount on the cheque or both.

On the matter, a banker said, "The existing provisions which make cheque bouncing an offence is facilitating recovery of loans and helping reduce bad loans of bank."

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