Cheque bouncing cases rise 129%

Falling stock markets and liquidity crunch in 2008 has resulted in a whopping 129 per cent increase in cheque-bouncing cases in Mumbai. Majority of the cases are related to Bollywood, share market participants and loan payment defaults by consumers.

According to data available with the Chief Metropolitan Magistrate, 1,35,012 cases were reported in Mumbai last year compared with 58,752 cases reported in 2007. This increase is in addition to the 6-8 lakh pending cases of cheque bouncing in the city.

According to financial experts, the increasing instances of cheque bouncing surfaced when the margin financing business got affected as mark-to-market losses of fund borrowers rose significantly after January 2008. “The margin financing business had spread its tentacles in a majority of businesses and all the other sectors have had a domino effect after crises in the big non-banking financial companies came to light,” said a Mumbai based chartered accountant.

According to rough estimates, NBFCs could have handed over Rs 30,000 crore as loans against shares and to big budget Bollywood movies. NBFCs lend money against collateral, which in most of the cases are equity and debt market related instruments.

When the markets crashed, NBFCs started calling back their consumer and business loans, which resulted in increasing defaults and cheque bouncing cases. A cheque bouncing case is registered under Section 138 of the Criminal Procedure Code (Cr.PC), wherein a person can be punished with an imprisonment up to one year or fine which may extend to twice the amount of the cheque, or both.

Following the rise in these cases, the Bombay High Court has decided to up 20 more courts to deal with cheque bouncing cases and a proposal in this regard has already been s been already send by the Chief Metropolitan Magistrate, Mumbai.