The Hindu Business Line : Debt Relief and Loan Waiver

Section 138 of the Negotiable Instruments Act in India relates to cases of bounced cheques that are issued by persons in settlement of any financial obligations without the necessary credit in the accounts on which the cheques are drawn, whether done innocently or intentionally.

The Section 138 provides for punishment to individuals who issue such cheques that can go up to three years imprisonment, in addition to a fine equal to the amount of the bounced cheque.

Frauds of this type generally happen in the urban areas, where persons, fairly often, give cheques with the intent to give an impression that they are making settlements of obligations even though they know that the cheques will be bounced by the banks on which they are drawn.

But, sometimes, this may happen in an entirely innocent manner. The drawer may write the cheque with no evil intent, genuinely believing that the account has the necessary provision at the time of writing.

It happens that in the interval between the drawal of the cheque and its presentation at the bank, some amounts may be withdrawn from the account through cheques issued previously, bringing the credit available below the sum of the cheque in dispute.

Cases of bounced cheques used to be very rare in the rural areas. First, very few farmers have bank accounts at all. Banking habits are not highly developed in the rural areas and people prefer to settle deals through cash rather than cheques.

Cases in Nashik

Recently, I had occasion to notice that in Nashik district of Maharashtra State, each Taluka’s Lok Adalat had around 200 cases pending under Section 138, involving fraudulent issue of cheques drawn on fairly non-decrepit rural banks. The total number of cases pending before different Lok Adalats of Nashik district is about 9,000.

It should be remembered that Nashik is a relatively affluent district in Maharashtra. It is a major producer of sugarcane, grapes, onions and a large variety of vegetables for markets not only in Mumbai but also in neighbouring Gujarat.

How come the more affluent farmers have suddenly got into the criminal malpractice of issuing cheques without provision?

There lies an interesting story behind this that is very illuminating on the working of the co-operative and the urban credit banks in rural areas. These banks have developed a new modus operandi for giving loans to farmers.

When a farmer approaches a bank for a loan, even before the farmer sees the colour of the money, he is required to mortgage his land, whether the loan is required for agricultural purpose or not, and confirm the same by getting his land revenue records marked as being mortgaged to the lender bank. As if the security of the land were not enough, the farmers are asked to go through a ridiculous routine.

He is advised to go to some other bank in the area and open an account there with the minimal deposit of Rs 250.

When a bank account is opened, the farmers are issued, depending on the amount of initial deposit, 3-10 blank cheque forms for eventual use, if and when needed. The lender bank forces the applicant farmer to sign the cheque forms without mentioning any specific amount. In course of time, when the farmer is unable to repay the loan, the lender bank proceeds under Section 101 of the Criminal Procedure Code.

Ruthless Section

Under this Section, the land of a defaulting farmer can be seized and auctioned by the revenue authorities if a decree is passed to that effect by a court of law. Given the actual situation of the farmers, it so happens that in many cases the authorities are not able to seize and auction the land and handover the proceedings to the lender bank.

In such cases the banks file cases in the court of law claiming that the cheques that bear the signature of the accused farmer, on which the amount of the debt and issuing date is now inserted by the lender bank, was issued without provision in the account.

Kafkaesque experience

Section 138 of the Negotiable Instruments Act is far more ruthless to the farmers than any comparable provision in the Indian Penal Code or the Criminal Procedure Code. A farmer unable to repay the loan can be sent to the prison under a Section that is entirely unrelated to the agricultural vocation.

Recently, there were three cases in the grape-growing Niphad taluka of Nashik district, where farmers who were charged under Section 138 committed suicide. In the case, the farmer Shinde had taken a loan of Rs 1,15,000. He required the amount for ensuring the education of his son.

He had earlier applied for an educational loan, which was refused by the bank. He, therefore, proceeded to ask for a loan that was granted by the lender bank as an agricultural loan, against the mortgage of his land and additional security in the form of blank signed cheques.

Desperate, and unable to face the ignominy of a jail sentence, Shinde threw himself in front of a passing train. The Police maintained stoutly that this was an accident. His son insisted that his father was feverishly writing something the day prior to his death.

No writings were found back at home. There must be a suicide note on the body, he maintained. There was one, indeed, detailing the Kafkaesque experience of his dealings with the Bank. The history of the two other cases is not very different. The Central Government’s Debt Relief and Loan Waiver Scheme (DRLW) 2008 failed to save Shinde’s life.

Thousands of farmers in this single district of Nashik alone are awaiting imprisonment and being fined under the draconian and vicious applications of Section 138, and so many more have suffered confiscation of their meagre belongings. They are accused of having issued cheques that they never issued. DRLW was announced in the hope of rich electoral dividends. Chances are that it will prove to be a cheque without provision and, hence, bounce in the face of its authors.

(The author is Founder, Shetkari Sanghatana and Member of Parliament, Rajya Sabha. blfeedback@thehindu.co.in)

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