ALIN Legislative News
From Kathmandu University School of Law
Recent Amendment to Banking Offence and Punishment
Act: An Effort to Correct the Anomalies in Cheque Dishonor Laws of Nepal, But
Is It Sufficient?
The
criminalization of cheque dishonour as a banking offence in 2008 by the Banking
Offence and Punishment Act, 2008 has created a huge problem in the criminal
justice system in Nepal. Despite the fact that the Negotiable Instruments Act,
1977 had already covered the cheque dishonour issues and provided civil
remedies for them, the Banking Offence and Punishment Act, 2008 made the act of
drawing cheques with the knowledge that the drawer does not have sufficient
funds in his/her/its bank account to pay the amount mentioned in such a cheque
a criminal offence and prescribed severe punishments for such offences with
hefty fines and imprisonments. This Act thus made it easier for any holder of a
cheque to file a police complaint if he/she/it discovers that the person
drawing the cheque does not have sufficient funds in his/her/its bank account.
There was no safeguards or opportunity available to a drawer of a cheque to
correct errors. As a consequence, the police and public prosecution system of
Nepal were flooded with tens of thousands of complaints related to cheque
dishonour (popularly known as cheque bounce in Nepal). People did not seek
civil remedies available under the Negotiable Instruments Act, 1977, they
preferred the criminal remedy as it was easily available. They just needed to
file an FIR with the police and the rest would be taken care of by the State itself.
The cheque bounce offences put too much pressure on the criminal justice system
and it also appeared to be disproportionately unfair to the drawers of cheques.
In order to make cheque bounce laws more fair and balanced, Nepal’s Federal
Parliament passed the Banking Offence and Punishment (Second Amendment) Act in
May 2025. This
amendment is said to have brought
systemic reforms in cheque dishonour laws of Nepal by
repealing overlapping legal provisions, tightening procedural timelines, and streamlining
enforcement.
The Key Changes Made by the Second Amendment: The
amended Act requires to fulfil certain
procedures before pursuing criminal remedies or sanctions against cheque bounce
or dishonour. These procedures allow the person accused of a cheque bounce
offence to correct errors, and the Act provides up to 45 days for such
corrections. If the cheque is presented for payment and the concerned bank
finds that the drawer does not have sufficient funds in its/his/her bank
account, and hence dishonors the cheque, the concerned bank should return the cheque to the holder. If the holder
wants to certify the fact that the cheque was dishonored, the concerned bank is
then required to issue a notice to the account holder using any medium of communications,
requiring him/her/it to deposit the due
amount to the bank account within
45 days, keep record of the issuance of
such notice, and return the dishonored cheque to the holder with the
information of such notice recorded in the cheque itself. The amended Act also permits a drawer of a cheque to
make payment of the amount mentioned in the cheque and withdraw the earlier
drawn cheque within 45 days of such notice issued by the concerned bank.
However, if the issue
remains unresolved even after the
lapse of 45 days, the bank must certify the dishonor within 3 days of re-submission or presentation of cheque for payment
and then return the cheque to the holder. The Nepal Rastra Bank (Central Bank of Nepal) is
tasked with developing uniform operational guidelines in this regard to ensure nationwide consistency
across financial institutions.
The amended Act also reduces the
limitation period for filing an FIR with the police within one year from the
date of certification of cheque dishonour by the concerned bank. Similarly, a
case must be filed with the concerned District Court within six months from the
date of filing of the FIR. The amended Act has also clarified civil remedies
available to the victims of cheque dishonour. Newly inserted Sub-section (1A)
of Section 15 stipulates that the victim is entitled to recover full amount
mentioned in the dishonored cheque as well as the interest to be accrued upon
such amount until the date of recovery of such amount as per the prevailing
laws of Nepal, if it is established in the court of law that the cheque has
been dishonored for the lack of sufficient funds. The person drawing such
dishonored cheque is also liable to pay five percent of the total claimed
amount as fines. In addition to such fines, the amended Act introduces a graded punishment with imprisonment on the basis of the amount in the dishonored cheque. If the amount in the dishonored cheque is up to 1.5
million Nepali Rupees, the drawer will face an imprisonment of up to one month,
if the amount is up to 5 million an imprisonment of up to three months, if the amount
is up to 10 million
an imprisonment of up to one year, if the amount
is up to 100 million
an imprisonment of up to 2 years, and if the
amount is above 100 million an
imprisonment of up to 4 years.
Despite being a criminal offence,
the amended Act has included new provisions allowing the parties to a cheque
dishonor dispute to reach a compromise. Newly inserted Section 26 A of the
amended Act states that notwithstanding anything contained in the prevailing
laws of Nepal, if the defendant in a cheque dishonour case pays all the amount
mentioned in the cheque to the holder and both the parties to the case desire
to reach a compromise, they could submit an application for this purpose to the
concerned government attorney through the investigating officer if such desire
is expressed during the investigation of the alleged offence, and to the
concerned court through the government attorney if such desire to compromise is
shown after the filing of a case with the concerned court. Upon receiving an application for reaching a compromise, the concerned government attorney is
required to instruct the investigating officer to
facilitate the execution of a
deed of compromise between the parties and record the fact of
such execution, and order the concerned investigating officer to suspend the
investigation accordingly. It is the duty of the concerned investigating officer to carry out
the execution of the deed of compromise and to maintain its record. If an application
for execution of a deed of compromise is submitted, the concerned court also needs to facilitate the execution of such deed of compromise in accordance with the prevailing laws. If the deed of
compromise is so executed, the defendant will not be liable to any punishment under the Act.
The amended Act changes apparently
very unfair provisions of the Banking Offence and Punishment Act, 2008 and
attempts to find a balance between the rights of a holder of a cheque and the
liabilities of a drawer of it. However, even the amended Act still seems to be
favoring a holder of a cheque rather than a drawer of it. The holder is not
required to establish that he/she/it is a holder in due course, having obtained
the cheque for value and in good faith. Although the amended Act defines the
“holder” as a person or institution in whose name the cheque is drawn and who is entitled to receive the amount mentioned therein, it does not make it clear how the entitlement to receive the amount mentioned in
the cheque could be established in practice. It is also not clear whether or
not the holder needs to establish his/her/its entitlement prior to making a
claim under the Act.