This article is written by Simran from Mody University of Science and Technology, Lakshmangarh, Rajasthan and curated by Naman Jain of Bennett University, Greater Noida
The economic issue of the COVID-19 lockdown, due to the culmination of almost all commercial activity, is yet to be fully ascertained. With the ‘Unlock 1.0’ earlier this month, many restrictions have been imposed in some places as factories, offices, restaurants, and malls following some protocols earlier are allowed to open their doors. While the economic stimulus package has been previously announced, with an uncertainty of market sentiments being low, other measures were needed to be taken to prop-up the economy.
The Union has initiated the process of decriminalization of minor offences that are currently punishable with a fine and imprisonment term. Concerning this, the Ministry of Finance had released its Statement of Reason (SOR). It sought opinions from stakeholders like state governments, UT Administration, Civil Society/ Non-Government Organizations (NGOs), academicians, public and private sector organizations, and the public proposals to amend 19 acts that criminalize economic offences by 27th of June, for instance, a bounced cheque.
Statutes which are proposed to decriminalize:
The finance minister has proposed to decriminalize offences dealing with the economic and financial affair, and the main aim is to make them compoundable offences. These include Negotiable Instruments act 1881, the Insurance Act 1938, NABARD Act 1981, RBI Act 1934, as well as some more recent legislations such as provisions of the Securities and Exchange Board of India Act 1992, Sections 26(1) and 26(4) of the Payment and Settlement Systems Act 2007, Section 29 of SARFAESI Act 2002, and Section 23 of the Factoring Regulation Act 2011.
Notable, the amendment under S. 138 of the Negotiable Instruments Act 1881 that makes a cheque bounce act a criminal offence is now being reclassified to a compoundable offence as the SOR specifies that mens rea and mala fide intent play a vital role in the imposition of criminal liability. Therefore, it is critical to assess the nature of non-compliance, i.e. fraud as compared to negligence or inadvertent omission and the essential Insolvency and Bankruptcy Code (Amendment) Ordinance 2020. By this ordinance, the initiation of new insolvency proceedings has been suspended for a period of six months starting from 25th March 2020 (extendable to one year). The Finance Minister said that Criminal penalties, including imprisonment for minor offences, act as a disincentive. This is perceived as one of the significant reasons impacting business sentiment as well as hindering investments both from domestic and foreign investors. This becomes even more relevant in the post-COVID-19 response strategy to revive economic growth and improve the justice system so that, the business can be run with ease.
Five key principles for reclassification:
The Statement has suggested five key principles for the reclassification of criminal offences to compoundable offences. i.e.
- Decrease in the burden on businesses and inspiring confidence among investors.
- Focus on economic growth and public interest.
- Government ensures that the nation should remain of paramount importance.
- Mala fide intent is punished while other less serious offences are compounded.
- Habitual nature of non-compliance.
Benefits of decriminalization:
Actions taken to decriminalize minor offences are expected to go a long way in improving the ease of doing business because the economic investors always have a fear of offence in mind. It helps the pendency of the cases and prisons to unclog the court system; therefore, the economic offences will be treated or considered as a civil offence so that investigation or mediation can take place. The scheme “Sabka Sath, Sabka Vikas and Sabka Vishwas” provides trust to economic investors as well as economic players and increases the investment.
Does this mean that the Government effectively provide Jail-free-card to the defaulters?
No, it does not, the Government is providing them special privileges in the world of commerce. Moreover, the interest of Debtors and the Creditors is also kept in mind and have to be balanced. If protection is extended only to Debtor, it would be unjust for the creditors as they also need funds to commence or to start their business. It will hamper the commercial validity of creditors.
Therefore, it is necessary to boost the economy. Businesses should take precautions to get back on their feet, maintaining a balance between competing interest and practicality. Protecting only the debtors will swing the pendulum on one side and will lead to sudden increase in cases that will deteriorate the objective of the proposed SOR.