Second Amendment to the Banking Offence and Punishment Act, 2064 (2008)

The Ministry of Law, Justice and Parliamentary Affairs, under the Government of Nepal, issued the Second Amendment to the Banking Offence and Punishment Act, 2064 (2008) (“Banking Offence Act”) through publication in the Nepal Gazette on 24 Baisakh 2082 (06 May 2025). The amendment introduces significant changes aimed at strengthening the regulatory framework around cheque dishonor/bounce, including a formal definition of cheque dishonor/bounce, detailed procedural requirements for banks, criminal and civil liabilities, and the recognition of compromise (Milapatra) between parties.

The key points of the amendment are as follows:

1. Statutory Definition of “Cheque Dishonor/Bounce”

The amendment defines “Cheque Dishonor/Bounce” (चेक अनादर) under Section 2(l) of Banking Offence Act as a situation where a bank, financial institution, or cooperative bank certifies that the payment cannot be made to the cheque holder due to insufficient funds in the relevant bank account of the cheque drawer, when the holder demands payment of the amount mentioned in the issued cheque.

2. Certification of Cheque Dishonor/Bounce

Previously, when a cheque was returned unpaid due to insufficient funds, banks and financial institutions would immediately issue a dishonor/bounce notice to the cheque holder upon presentment.

Now, with the amendment Section 3A has also been introduced to the Banking Offence Act, which provides that the cheque holder must request the concerned bank, financial institution, or cooperative bank to formally certify the cheque as dishonored/bounced. Before certifying a cheque as dishonored/bounced, banks and financial institutions or cooperative bank are required to undergo a due process, as detailed in the table below:

3. Civil and Criminal Liability of Account Holders

Previously, as per Section 107A of the Negotiable Instruments Act, 2034 (1977) (“Negotiable Instruments Act”), the drawer would be liable to repay the cheque amount with interest to the cheque holder and could face up to 3 months’ imprisonment, a fine up to NPR 3,000, or both in the case of cheque dishonor/bounce.

Now, Section 107A of the Negotiable Instruments Act has been repealed by the amendment.

Now, as per the amendment Section 15(1A) has also been introduced to the Banking Offence Act, which provides that in the event of certified cheque dishonor/bounce, the account holder will be liable to:

a) Repay the full cheque amount to the cheque holder;

b) Pay statutory interest from the date of cheque issuance to the date of actual repayment; and

c) Bear a penalty of 5% of the dishonored/bounced amount.

In addition, the aforementioned liability, the Section 15(1A) of the Banking Offence Act, introduces graded imprisonment based on the amount involved, as detailed in the table below:

4. Time Limitation for Legal Action

With the amendment to Banking Offence Act, FIR concerning cheque dishonor/bounce must be lodged within 1 year from the date of certified dishonor/bounce. Following such complaint, a lawsuit must be filed in the relevant District Court within 6 months.

 5. Recognition of Compromise (Milapatra) Mechanism

One of the notable progressive features introduced by the amendment is the formal recognition of compromise (Milapatra) as a legitimate resolution mechanism in cheque dishonor/bounce cases. Under the new framework:

a) Parties can file a joint application for compromise before the investigation concludes (through the investigating officer and government attorney), or after the matter is sub judice (through the government attorney to the court).

b) Upon verification of full payment to the cheque holder, the matter can be amicably settled.

c) Once such a compromise is approved, the accused will not be subject to further prosecution or punishment under the Banking Offence Act.