This article is written by Girija Rani Mullapudi from Damodaram Sanjivayya National Law University (Vizag).
This article focuses on the Government’s recent decision to decriminalise the dishonour of cheques under Section 138 of the Negotiable Instruments Act, 1881. This article discusses the decriminalization notification, the government’s statement and reasoning, the merits and demerits of decriminalization, and the conclusion (personal opinion of the author).
The Indian government has undertaken a number of measures in the last several months in response to the disturbances created by the Covid-19 outbreak. One of such measure was on June 8, 2020, the Ministry of Finance sought government oversight on a proposal to decriminalise a number of minor offences in order to lower the burden of possible criminal responsibility on enterprises, shorten the time it takes for cases to be resolved, and improve the ease of doing business in India. The Finance Ministry has also declared that decriminalisation will be a part of the post-COVID-19 reaction strategy to recover the economy and enhance the justice system in India. Cheque dishonouring was one of the crimes sought to be decriminalized under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”). The proposition was met with immediate resistance from both inside and beyond the legal community. We, on the other hand, believe that decriminalizing cheque dishonouring would not have the enormously negative impact that most opponents of the plan believe it will.
By decriminalizing Dishonour of Cheque, as well as 38 other petty economic offences, one such proposal was passed through circular dated June 8th to fulfill the objectives of SabkaSaath, SabkaVikas, and SabkaVishwas. The finance ministry has suggested that 38 different offences be decriminalized through 19 different Acts. There are several clauses of various laws that invite criminal prosecution and penalties, including detention, fines, and other forms of punishment, even for minor rules violations or minor procedural lapses. This has a negative impact on the corporate community. As a result, the government is considering decriminalizing a number of offences, which will be a move in the right direction of achieving the much-coveted goal of incentivizing more domestic and foreign investment by promoting ease of doing business.
Since punishment for such a crime may have a deterrent effect on business and investments, the goal is to make business transactions easier. The Makwana case may be used to justify such a plan. In the case of Makwana Mangaldas Tulsidas v State of Gujarat, the Hon’ble Supreme Court noted that over 35 lakh cases of cheque dishonour were pending and filed a suo motu case to formulate a procedure to resolve such cases.
The Ministry of Finance recently released a public notice titled “Decriminalization of Minor Offenses for Improving Business Sentiment and Unclogging Court Processes,” inviting stakeholders to comment on the proposed decriminalization of a number of offences, including S.138 of the Negotiable Instruments Act 1881, which makes check dishonour a criminal offence.
The Key Reasons for this proposal are:
The possibility of incarceration for acts or omissions that are not actually illegal deters domestic and foreign investment.
Legal ambiguity and the time it takes for courts to resolve disputes affects the ease of doing business.
These considerations are much more important in developing a post-COVID-19 response strategy to boost economic growth and improve the justice system.
Provisions that are merely procedural in nature and do not affect national security or the public interest should be reconsidered.
Reclassifying criminal offences to compoundable offences should be done with the aim of growing the burden on businesses.
The Government is considering decriminalizing a number of offences, which would be a step toward achieving the much-desired aim of encouraging ease of doing business in order to draw more domestic and foreign investment. In order to attract both international and domestic investment, a country’s policies and regulations must be business-friendly, with no retaliation for slight lapses or violations of rules that can be easily rectified.
MERITS OF DECRIMINALIZATION
According to the Law Commission of India’s 213th Report, there were over 38 lakh cases of cheque dishonour pending in courts, with over 7.6 lakh cases pending in criminal courts at the magistrate level alone in Delhi.
Due to the large backlog of these cases, other cases are still put on hold, giving criminal the justice system a bad reputation.
Cheque dishonour can be punished under section 420 of the Indian Penal Code and hence, there is no need for a separate provision for the same reason.
The crime has been significantly reduced by making it a compoundable offence, demonstrating the legislature’s desire to reduce the backlog of such cases.
DEMERITS OF DECRIMINALIZATION
Section 138 goal is to improve the integrity of checks, making business transactions safer and more effective. It’s possible that decriminalising it would make accepting checks more difficult. This may lead to a lack of confidence in business practices.
The civil court alternative is time-consuming and expensive. Many payees are from the poorer sections of society and cannot bear the costs of civil litigation.
The threat of criminal prosecution ensures that the drawer honours the checks; decriminalisation will eliminate this fear.
A cheque is mainly used as means of credit in the form of ‘post-dated cheque’, decriminalising it would strip away the credibility which can cause decline to economic activity.
It will over-burden the civil courts.
In the views of the author, instead of decriminalizing the dishonour of cheques through and through, a more adjusted methodology might be to fix a base edge limit for summoning the criminal purview in such cases. This could be fixed at Rs. 1 lakh or such other sum as discovered suitable by Parliament. This will guarantee that holders of checks in bigger exchanges are ensured by a strong criminal cure, subsequently keeping up the first administrative purpose, while simultaneously lessening some degree of weight on the criminal courts by removing more modest cases and giving some aid to people/elements who don’t need to confront indictment in the event of little exchanges. All in all, it is the author’s view that the arrangements of Chapter XVII of the Negotiable Instruments Act, 1881, be held. The COVID-19 outbreak has made a huge impact on economies all around the world, and the growth in financial crime that has resulted is unquestionable. While regulatory leniency, increasing hurdles to entrance into formal bankruptcy procedures, and the extending of procedural deadlines are all positive steps, decriminalizing Section 138 may be too far.
Government of India Ministry of Finance Department of Financial Services, 8th June, 2020, https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf , May 3, 2021.
S. 138 of the Negotiable Instruments Act, 1881.
Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695.
Government of India Ministry of Finance Department of Financial Services, 8th June, 2020 Statement of Reason: Decriminalization of Minor Offences for Improving Business Sentiment and Unclogging Court Processes, https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf, May 3, 2021.
Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 2.18.
S. 420 of Indian Penal Code,1860.
Edited by Shivanshika Samaddar of National Law University Delhi.