Mediation must precede trial in cheque-bounce cases; courts shouldn’t be turned into recovery agencies: HC
Punjab and Haryana HC directed that every trial court (CJM/JMFC) must immediately refer all NI Act matters to mediation after service of the accused, unless the matter had already been sent for mediation
Observing that criminal courts are facing a “tsunami” of cheque-dishonour cases, the Punjab and Haryana High Court has directed that all matters under the Negotiable Instruments (NI) Act must be first referred to mediation.
The bench observed that the swelling docket of such cases required a structural shift towards mediation.
“In the continuous tsunami of criminal cases being filed against the dishonor of the cheque, the proverb, ‘When you are at the edge of a cliff, sometimes progress is a step backwards,’ needs adherence,” the court observed.
Mandatory reference to mediation
Laying down the procedure, the court directed that every trial court (CJM/JMFC) must immediately refer all NI Act matters to mediation after service of the accused, unless the matter had already been sent for mediation. Similarly, the sessions courts dealing with appeals and revisions must refer all pending matters to mediation after service of the opposite party if they have not already been mediated.
The court clarified that mediation remained voluntary and non-binding until approved by the court. The trial proceedings could resume without prejudice if mediation failed. “Wait, and it withers, rush, and it dies, only through prudence justice survives,” the bench added. It was assisted in the matter by advocates Viren Sibal, Divyanshu Goyal, Himanshu, and Amandeep Singh.
State not to be impleaded in NI Act cases
The high court also directed that the state should ordinarily not be impleaded as a party in cheque-bounce cases, describing them as essentially private disputes.
“Needless to say, the state cannot be made a party in the NI Act case, because it is a private dispute… For a custody certificate and confinement, there is no need for the state to be arraigned as a party before the Sessions Court, and if it is, its name shall be deleted,” the court said, adding that such impleadment unnecessarily delays mediation.
Breach of financial trust
Explaining the legal framework, the court noted that cheques represent a solemn financial promise.
“Cheques are commonly used as a convenient and reliable method of deferred payment to facilitate smooth business dealings and reflect the mutual trust and confidence placed by one party in another,” the bench asserted.
The court added that issuing a cheque carried an inherent assurance of payment. Issuing it was a solemn promise that the amount would be paid when presented. When such a cheque was returned unpaid due to insufficient funds or reasons attributable to the drawer, the law considered it a breach of financial trust.”
However, lengthy criminal litigation in such matters often defeated the purpose of the law.
“As a result, lengthy legal proceedings in these cheque bounce cases often caused delays, diminuated the amount involved, and resulted in financial loss for the complainant. This delay undermined the law's goal of providing compensation and added to the burden on the justice system.”
Courts flooded with quasi-criminal recovery disputes
Tracing the history of the law, the court observed that the Negotiable Instruments Act, 1881, was enacted to bring legal certainty to financial instruments that functioned as substitutes for cash transactions. But over time, the criminal provision for cheque dishonour had led to an overwhelming volume of litigation.
“The cheque bounce cases are quasi-criminal in nature: punitive yet primarily aimed at compensating the holder of the cheque for the dishonoured amount,” the court observed.
Amendments introducing penal liability were meant to enhance the credibility of commercial transactions and instill confidence in the use of negotiable instruments, especially cheques, and not to reduce courts into “recovery agencies.”
The bench added: “Unfortunately, overburdened courts, especially in India, are flooded with such cases, consuming judicial time that could be better spent on more disputes requiring authoritative adjudication.”
Mediation as practical solution
The court asserted early-stage mediation offered a more rational and economically sound solution, allowing quicker recovery for the complainant while reducing the burden on courts.
“Early stage Mediation can ensure quicker recovery for the cheque holder and preserve business relationships. The compensatory objective of the law can be achieved without burdening the justice delivery system.”
The court further noted that the state’s financial position was rarely affected by cheque defaults since taxes were already collected at the point of sale, while the real loss fell on private parties caught in prolonged litigation.
Question over continued use of paper cheques
The judgment also made a broader policy observation about the continued use of paper cheques in the era of digital payments.
“Unfortunately, as India advances digitally, it has overlooked and undermined the humble paper cheque by not discontinuing it as has been done in majority of countries. The massive success of the Unified Payments Interface (UPI) could have fully replaced the paper cheques had these been abolished.”
The court added that the legal system was often used as a recovery mechanism because court fees for filing cheque-bounce cases were minimal in several states.
Balance between speed and fairness
Referring to the need for balance in justice delivery, the court cited the Latin maxim “Festinatio justitiae est noverca infortunii”, indicating that hasty justice was the stepmother of misfortune.
“Justice should be fast enough to heal, yet slow enough to hear. Tardy justice undermines constitutional protections, while justice that is hasty compromises procedural equity,” the court added.
