An Economic Analysis of Check Bounce Cases : In India Check Bounce | Page 10

In this case, assume that the Plaintiff (p) and Defendant (d), are in the state of nature, without any
court or rule of law. In such a case the d’s dominant strategy would be no care or dishonouring the
check always, as there is no law to regulate his actions, hence he’ll get a surplus of +10 always in
the game. The dominant strategy for p is clearly to show due care, by doing a background check on
the person with whom he’s taking a check, to see whether such dishonours of check were done even
before, hence by taking legitimate due care, p only gets a surplus of +5 as the other 5 is the amount
spend on doing strict background checks.
Clearly the defendant wins in all the cases, hence in order to regulate him the Negotiable Instru-
ments Act comes into picture. Now p if does not receive his due amount from d within a period of 6
months, he can go to the court of law by sending a notice to d. In a check bounce case, clearly it
would take around 3 years or more for the judiciary to settle the dispute, as a result both the parties
loose out on legal fees such that their surplus reduces. p now has a surplus of +7, whereas d has a
surplus of +6, as d also had to pay for his bail in the court. As per the civil procedure code, both the
parties have to compulsorily go for Arbitration.
In Arbitration, extra fees are cut of both the parties, such that p has a surplus of +6 and d has a sur-
plus of +5, in case of an arbitration always the defendant council would put the lowest value vari-
able for settlement. Hence in case of a check bounce of Rs 2,00,000/-, the parties would offer a
mere amount of Rs 1,00,000/-, if p accepts the amount then d surplus increases to +8, whereas p’s
surplus reduces as he does not get the amount he was supposed to get, and d settled for a less
amount.
Hence from the above situation it is incentivising for the defendant to do a dishonour and settle for
an amount less than the actual promised in the check.
However if the plaintiff, denies the same settlement in arbitration and goes on for further proceed-
ing in court, he has to wait for another 3 years to get a judgement, by including the lawyer’s fee and
subsequent transport fees, the plaintiff can face a fee of around Rs 32,000, which is if certainty ex-
ists in his mind with respect to winning the case. Hence if the plaintiff is certain, then only he must
for for further proceedings in court, otherwise must accept the arbitration amount.