Security cheque: a weapon of choice

In recent times, the number of dishonoured cheques has seen a significant rise.As a result, the courts in Bangladesh are inundated with such cases. Under Section 138 of the Negotiable Instruments Act 1881, if a cheque is dishonoured, an offence is committed. This is regardless of the nature of cheque and the purpose for which it was given. Such offences under the Act of 1881 are strict in nature. As a result, it is the desired weapon of choice for most banks in Bangladesh when giving loans to borrowers.   

According to Section 138 of the Act of 1881, where any cheque (drawn by a person for payment of any money to another person) is returned by the bank unpaid, for any reason, such person shall be deemed to have committed an offence under the Act of 1881. The requirements are simple and the process that needs to be followed by banks to file a case hereunder are: (i) the cheque had been presented for encashment within a period of 6 (six) months from the date on which it was drawn or within the period of its validity, whichever is earlier; (ii) the bank makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within 30 (thirty) days of the receipt of information by it that the cheque has been returned unpaid; (iii) and the drawer of such cheque fails to make the payment of the said amount of money to the bank within 30 (thirty) days of the receipt of such notice. If a borrower commits any offence under this Section, he will be punished with imprisonment for a term which may extend to 1 (one) year, or with fine which may extend to thrice the amount of the cheque, or with both.

Moreover, under the Act of 1881, the bank also has the right to establish his claim through a civil court if whole or any part of the value of the cheque remains unrealised.

As a result, when granting loans, banks often take cheques as security from the borrowers. This may be in the form of undated cheques or post-dated cheques to cover the loan amount along with a letter of authority to place the same at a future date. Although the Bangladesh Bank has fairly recently issued a Circular to stop taking such cheques as security, but prior to that, this was the most widely-used security when granting loans by banks to the borrowers. Even though the borrower mortgaged its properties to the bank along with other forms of guarantee etc., the banks would still keep security cheques as their weapon of choice due to the strict liability offence under the Act of 1881.

Since the Act of 1881 allows banks to pursue its claims simultaneously through a civil court, it can be seen that banks are regularly filing civil claims against the borrower for reimbursement of the loan amount (covered by the same cheque) under the Artha Rin Adalat Ain 2003 (in English: the Money Loan Courts Act 2003) and, simultaneously, a complaint case for the dishonouring of the same cheque under the Act of 1881. Although numerous cases have been filed against this right on grounds of double-jeopardy, eventually it has been settled by the Supreme Court that it is well established that criminal proceedings can be proceeded independently of the civil suit. Since offences under the Act of 1881 are separate under a special law, it has nothing to do with the civil claim. Therefore, it is an established position in law that there are no legal restrictions on banks to commence proceedings under Section 138 of the Act of 1881 simultaneously with a civil suit under the Act of 2003. Although one could argue that it is unfair that the bank has the right to file a civil suit simultaneously with a case under the Act of 1881 for the same loan amount (in effect), such arguments and/or sympathy have no place to stand in such situations where the law is crystal clear.

Also, it is important to note that the Act of 1881 does not specifically categorise or qualify any cheque on grounds of its nature or purpose. Although many borrowers have challenged the validity or legality of security cheques, on grounds that, inter alia, it is not a negotiable instrument per se, the legal recognition of security cheques has been positively decided by the Supreme Court in Bangladesh with the result that security cheques are valid under the laws of Bangladesh. The Supreme Court had held that since the legislature did not make any difference regarding a post-dated cheque issued as security for the repayment of the loan availed by the borrower, under the Act of 1881, there is no basis of making any such difference through a judicial interpretation. Again, one could argue that, at the time of giving the cheque as security, the borrower did not know or contemplate that it would default and an offence would be committed under the Act of 1881 at a later date thereby arguing that there was no mens rea at the relevant time to commit the offence, which is essential for any criminal offence. However, it is unlikely that such arguments would suffice or be upheld by the courts in Bangladesh since an offence under the Act of 1881 is strict and only requires the satisfaction of the requirements of Section 138 of the Act of 1881 (as stated above) - nothing more, nothing less. 

Apart from the above arguments, we have also seen a plethora of cases where other arguments have been advanced by borrowers' counsel on grounds of technicality and sympathy, but unless the Act of 1881 is amended to take into these factors, it seems that security cheques (which have been taken before the Bangladesh Bank's Circular) will remain to be a weapon of choice for recovery and enforcement of bank's liability and used, as and when required, to create pressure on the borrower.

The writer is an Advocate at the Supreme Court of Bangladesh.