The offence for a Cheque Return is “Cheating” under Section 398 of the Penal Code.

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Definition of Cheating

“Whoever by deceiving a person fraudulently or dishonestly induces a person to deliver any property to any person or intentionally induces a person so deceived to do or omit to do which he would not do or omit if he was not so deceived and which act or omission causes or is likely to cause harm to a persons body, mind, reputation or property”.

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An illustration in the code under the above provision sites an example;
A tenders a cheque on a bank where he has no money and has knowledge that the cheque will be returned intentionally deceives
B.However dishonest intention is difficult to prove.
The other remedial measure to mitigate the risk involved is to introduce Domestic Cheque Guarantee Cards to the market by the commercial banks. Cheque Guarantee Cards are normally only used to support personal cheques.

No payment culture could be strengthened neither by enforcement of legislation nor by deterrents and penalties. In certain countries a concept called ‘Dishonoured Cheque Code of Conduct’ is observed by the commercial bankers and the public in general. This Code of Conduct should be voluntarily drawn up by the local commercial banks to outline minimum standards and principles of good banking practice when they deal with dishonoured cheques due to non-availability of funds. The general objectives of this Code of Conduct should encourage a greater understanding of the roles, rights and responsibilities of the local commercial banks, their customers and third parties for their mutual benefit.

It is interesting to identify which segment of the community has suffered due to bounced cheques.  The Better Payment Group, UK has found half of UK businesses have suffered a bounced cheque in the year 2005.  The Institute of Chartered Accountants of England and Wales said “the survey highlights the fact that bounced cheques are a real problem for businesses. It is interesting to note that micro businesses suffer fewer bounced cheques than larger companies. This may be because, to their smaller client base, micro companies are able to gain a more detailed knowledge of their customers. Building strong relationship with customers, particularly the major purchasers, is important as it can be an excellent way to encourage priority payment”.

It is my opinion that the micro sector in Sri Lanka is the most severely affected segment by the bounced cheques contrary to UK experience.

Since the subject of cheque returns is generating public focus, the Central Bank of Sri Lanka jointly with the Sri Lanka Banks’ Association (SLBA) and Lanka Clear (LCPL) are giving priority attention to this issue and appropriate action in the legal regime, operational levels and more stringent deterrent measures will be introduced shortly.

A.Sarath de Silva
3rd April 2007

The contents of this article represent the views of the writer and not necessarily the views of Lanka Clear (Pvt) Ltd.  Mr.A Sarath de Silva is presently the Chairman of Lanka Clear (Pvt) Ltd. and the former General Manager of the Bank of Ceylon. He is also a Fellow of the Chartered Institute of Bankers’ London and the Institute of Bankers’ Sri Lanka.