Decriminalizing minor offences like cheque bouncing

Updated: Mar 14

Introduction

The criminalisation of writing cheques without an adequate balance in bank account was introduced in India in 1988. It was an addition to British law called the Negotiable Instruments Act, made in 1881. The purpose behind the alteration was the endemic issue of cheques being dishonoured. This has made it hard to do transactions where payment and delivery don't occur immediately. Mistrust of cheques was encouraging cash transactions, with consequent problems of counterfeiting, costs of storing and moving cash, and the law enforcement problems of an underground economy.[1] It has been assessed that 30% of criminal cases in Indian courts are of cheque bouncing. India intends to decriminalize the Sec. 138 of Negotiable Instruments Act, i.e of cheque bouncing. Under Sec 138 of N.I Act Cheques returned due to deficient bank balance is an offence. The law prescribes two-year imprisonment and a fine proportionate to twice the amount involved. The administration intends to decriminalize another 39 economic offences in 19 acts and rename them as civil offences . This move is aimed at decongesting the judiciary.

In 1988, when the amendment was made in the law, no estimation was done of the burden on the criminal court . This has shown that each time a new law or amendment is made , cautious counts should be made about the expenses of implementing the law . Highlighting the docket burden these cases cause, the Supreme Court has registered a suo motu case for evolving a mechanism to dispose of these cases expeditiously.

This provision was incorporated in the Act, with the objective to defeat the criminal intent of the persons, who swallow the hard earned money of the investors and entrepreneurs. Also it creates fear of being booked in case you fail to pay contractual obligation. Promoting efficiency in banking operations and ensuring credibility in transacting business through cheques was the intention reason behind making cheque bounce a non-bailable offence.[2] It was held in various judicial pronouncements from time to time that section 138 was meant to protect the Bonafide creditors against the unscrupulous drawers  who never intend to honour the cheque issued by them. In a recent judgement of Makwana Mangaldas Tulsidas v. State of Gujrat &Ors.[3] the Supreme Court opined on decriminalization of dishonor of cheques of smaller amounts. The Apex Court has held that offence committed under Section 138 of the Act is almost of the nature of a civil wrong which has been given criminal overtones and that the gravity of offence under Sec 138 N.I Act cannot be equated with the offences in IPC or other Criminal Procedures.[4] If such offences are decriminalized it would give the right to such persons to abuse the process at their own whims and fancies.


Mixed reactions

The Center's plan to decriminalize the offence of cheque bounce and make it a civil offence has received mixed reactions from economists, stakeholders etc. The govt. has asked academicians, organizations (both public and private) , multilateral institutions etc. to give their opinions , on the basis of which it will finalize the rules. While large organizations are favouring it, expressing that it would help improve the ease of doing business. Whereas small traders are against the proposal saying that it would increase the number of dud cheques in the system, which will lead to chaos in settlement of financial deals, both personal and business.

Opinions favouring the decriminalization of Sec 138 of N.I Act

This step  is taken for improving the ease of doing business. It will help in speeding economic growth and encouraging firms. There is a growing concern in the govt. that due to Covid-19 there may be an increase in financial failures and economic distress that can be treated as fraud under current rules. In current law , even minor non compliance of rules or procedural lapses results in criminal charges which then leads to do business being an fairly burdened.  Imprisonment for such minor offences impact business sentiments negatively and hinder investment both in the domestic and foreign sphere. The risk of imprisonment for actions that are not necessarily fraudulent or the outcome of mala fide intention is a big hurdle in attracting investments. The judicial system is already clogged, with rising case pendency and then proving innocence even in such minor offences take ages. A civil penalty is easier because in a criminal case offence has  to be proved beyond reasonable doubt To secure the conviction of the accused whereas in a civil case the plaintiff has to prove a wrong doing only on the basis of preponderance of probability. This will help in minimizing the pressure on business and encouraging trust among investors. Thus, the government is of the view to impose only monetary liability and no imprisonment. It would be a significant step towards Sabka Sath, Sabka Vikas, Sabka Vishwas.

Opinions against the decriminalization of Sec 138 of N.I Act

Though the objective of the Finance Ministry is to ease the business and promote economic growth , there are ample number of voices criticizing this step. Beside the fact that there are numerous pending cases related to this in courts but the solution is surely not to decriminalise it.  Instead it lies in simplifying the enforcement and prosecution process.  A bounced cheque is equivalent to fake currency and is a much more serious crime . It amounts to cheating, since the receiver is under the false impression that there are sufficient funds in the issuer’s  Bank.  Hence cheque bouncing cannot be equated with the minor non compliance or procedural lapse . It should remain a criminal offence as its decriminalization will harm the business . Grace period can be given for the payer in case of legitimate delays in Clearing and settlement but this offence should not be let off as civil. 

The Bar Council of India has also conveyed its resentment and anguish to decriminalize dishonor of cheques. Decriminalization of cheque bounce will adversely impact the business entities specifically those dealing on credit or post dated cheque basis. This move will certainly prove counterproductive as a potent and expeditious mechanism for recovery of loans through penal consequences.[5] Because a significant portion of business whether retail or bulk is carried out through cheques and in case the offence is decriminalised offenders will no more be  fearful of law  and will be wrongfully benefited. This will also affect recovery of banks as well as other creditors or suppliers because this was criminalised to deter borrowers or persons from issuing false cheques.



Suggestions to tackle the present situation better

There have been ample propositions on how this situation could be best handled without decriminalizing Sec. 138 of N.I Act. The All-India Bank Employees Association (AIBEA) has proposed threshold limits be fixed for cheque bounce cases to attract criminal prosecution. It is against the government's proposition to do away completely with the current practice of treating cheque bounce as a “criminal offence” and making it a civil offence. For individuals, in the event that the sum of bounced cheque is ₹1 lakh or more , at that point it would be treated as a criminal offence and in the case of companies the sum of bounced cheque is ₹10 lakh or more then it would be tried under the Criminal Procedure Code. Furthermore, a mechanism can be developed for pre litigation settlement in these cases.

National Legal Services Authority , being the concerned authority, can come up with a scheme for disposal of cases related to dishonor of cheques through alternate disputes redressal methods.  The other method can be to lay down guidelines for the banks to levy hefty penalties in case of cheque bounce. Another practice which is prevalent in the United States can be to impose increased penalty for the defaulters who have defaulted multiple times. This will act as a strong deterrent.

In addition to this, we can also adopt electronic systems which will replace the cheques. 

Conclusion

The suggestions have also been criticised because if cheque bounce is made civil offence that won’t it increase the burden of civil courts? If we opt for arbitration then where will we get the increased no. of arbitrators and will it be faster? Though the govt. will consider some principles when reclassifying criminal offences to compoundable offences. Thus, reclassifying offences would be done with an objective to reduce the burden on businesses and inspire confidence among investors, focus on economic growth, public interest and national security should remain paramount.[6] Business should not be under threat of criminal sanction but at the same time it's important to evaluate the nature of fraud as compared to negligence and habitual nature of non compliance. To overcome this fear , the govt. should encourage voluntary compliance to increase awareness and only then it is possible to successfully decriminalize Sec. 138 of N.I Act.


References

1. Shubho Roy, The saga of criminalizing and then decriminalizing cheque bouncing, avaialble at,

https://blog.theleapjournal.org/2013/06/the-saga-of-criminalising-and-then.html ( last accessed 20 June2020)

2. FICO opposes finance ministry’s proposal to decriminalise cheque bounce offence, avaialble at,https://www.hindustantimes.com/chandigarh/fico-opposes-finance-ministry-s-proposal-to-decriminalise-cheque-

bounce-offences/story-zbpYMDKwdCnvmr9197ZvNL.html ( last accessed 20 June2020)

3.  SLP (Cri) No. 5464 of 2016

4. Kaushalya Devi Massand v. Roopkishore Khore (2011) 4 SCC 593

5. Supra, note 2

6. Supra, note 1


Author - Mitali Goyal

Student of Rajiv Gandhi National University of Law, Patiala, Punjab.

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