Rupali and Bhavi*

A significant step has been taken by the Government of India with an objective of achieving ‘Sabka saath, Sabka Vikas and Sabka Vishwas’ and proposed decriminalization of several economic offences including the offence of dishonour of cheque under Section 138 of the Negotiable Instruments Act, 1881.

This section ensures that obligations undertaken by issuing cheques as a mode of deferred payment are honoured and casts criminal liability punishable with imprisonment up to 2 years or fine which may extend to twice the amount of cheque or both, on cheque being dishonoured by the bank on presentation, on account of insufficient funds.

The government has proposed decriminalization of section 138, Negotiable instruments Act on the following grounds:

– It provides an opportunity of doing business with ease thus inducing investment in the economy.

– Criminal penalties including imprisonment for minor offences acts as a deterrent and is perceived as one of the major reasons impacting business sentiments and further hindering investment.

– Uncertainty in legal processes and the time taken for resolution in the courts increases cost in terms of legal expenses and time.

– Acts as a COVID 19 response strategy to help revive the economic growth and improve the justice system.

– It will be effective in reducing clogging of cases in courts and will lead courts to focus on important pending cases.

However, if such section is decriminalised and measures and reliefs available to respective parties are eliminated:

  • Evaluating the difference between frauds and mere negligence is very subjective, hence ignoring the fraudulent intentions behind the defaulter will worsen the trust ability in market.
  • Cheques currently being used as a mode of payment in most of the financial transactions will lose their sanctity and credibility , and soon be replaced by cash and other modes of payments, hence causing a failure in Government’s campaign of cashless economy.
  • As per the existing trends in financial world today, people use post-dated cheques (PDCs) against the purchases made from MSME’s and other business entities, however, this change will act as a deterrent in many business transactions.
  • Businessmen and Vendors will stop accepting payment in forms of cheques, fearing they might return unpaid and leave them in a position of financial crisis.
  • There will be a huge increase in number of frauds and losses incurred due to non-payment, which furthermore can affect the economy on a macro level, pushing it more towards debt spiral and financial depression.
  • Banking industry might face the non-favourable impact of such changes.
  • The holder of dishonoured cheque can still initiate the proceedings against defaulter under the Indian Penal Code under Section 406 (Criminal breach of trust) and 420 (Cheating) as IPC and NI Act, 1881 are independent remedies and are not mutually exclusive. Hence the purpose underlying decriminalisation of dishonour of cheque will be defeated. (As Supreme Court held)
  • It was due to severity of penalties that cheques were considered a secure mode of payment. Now there would be severe problem in recovering legitimate business dues and private loan and therefore acts as a deterrent rather than promoting business.
  • Proposal of decriminalisation is in contradiction with provisions of Section 143A and Section 148 of Negotiable Instrument Act,1881 which were recently inserted in order to provide redressal to the complaints and on the other hand diluting the said act is unwarranted and self-contradictory.
  • Decriminalisation would lead to promotion of a cash-based economy instead of a cash less economy; thus, leading to increase in black money too.

Considering the above harsh repercussions of Decriminalising the offences of cheque bounce, the Government must look for easier and better ways of handling this problems to strike a balance among unburdening the businessmen from time consuming procedures, courts from pending cases and providing security of payments at the same time.

Alternative methods that can be applied in place of decriminalisation to obtain a Win-Win situation for Government as well as General public are:

  • Cheque bounce can also be discouraged and prevented by decreasing the CIBIL score of defaulter and further depriving him of credit card and loan facilities.
  • Banks can also establish a vigilance committee to investigate the matter of bulk cheque dishonours and act for redressal and settlement so that there is speedy recovery and less hassle.
  • Minor crimes such as bounced cheques can be dealt with establishment of “One Day Courts”. The decision on such crimes are issued within 24 hours. This would act as a safeguard against cumbersome long court proceedings and legal expenses.
  • Amendment should be brought with regard to detention of certain bounced cheques (for rent example) or cheques drawn for small business transactions or cheques drawn by small and medium enterprises etc. Only penalty should be imposed in such cases as the basic purpose is to recover money. For example, in UAE, the drawers of bounced cheque AED 200,000(or less) can be sentenced by Dubai Public Prosecution directly without referring to the court. Only penalty is imposed and no detentions.

* Rupali and Bhavi are associated as Articles with M/s S P Babuta and Associates.

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February 2024