pri Unwarranted Proposed Decriminalization of Section 138 of Negotiable Instruments Act 1881 Proposed Decriminalization of Section 138 of Negotiable Instruments Act 1881 Unwarranted & against Public Interest

The Modi government in a bit to improve ease of doing business and unclogging courts has decided that 39 sections  in 19 different Acts, which have been identified,  shall  be decriminalised. The  government intends to do away with minor  financial offences and has sought comments from the stakeholders against this move of  decriminalisation as they do not impact national security or public interest. The government felt that criminalizing procedural lapses unnecessarily burden the ease of doing business and it has therefore decided to relook at procedural deficiencies and to do away with prosecutions in such matters to promote the ailing economy as a part of “Atmanirbhar economic package”.

Amongst the different Acts, the government wishes to decriminalise, the MSME’S, small business & common man have been perturbed by the proposal to decriminalise section 138 of Negotiable Instrument Act, 1881 for bouncing of cheques, as this would lead to a great problem in recovering legitimate business dues and private loans and act as a deterrent to normal business instead of promoting it.

It is pertinent that Negotiable Instruments Act, 1881 provides for an early mode for redressal where a cheque, for discharge of debt or liability, is dishonored due to paucity of funds or where it exceeds arrangement. Section 138 mandates that “such person shall be deemed to have committed an offence and shall, without prejudice to the other provisions of this Act, be punished with imprisonment for a term which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or with both.”

On one hand the government has recently inserted certain S 143A & 148  to make the N I Act more effective and powerful in providing redressal to the complainants and all on the other hand diluting the said act is itself self contradictory and unwarranted.

It is pertinent to note that as per the 213th report of Law Commission, almost 20 percent of the pending litigation relate to cheque dishonor disputes u/s 138 of the NI Act. This speaks of the existing trends in the financial world today. People give postdated cheques against purchases from MSME’S and other business entities. Similarly business entities and even individuals take personal/ private loans from outsiders and issue post-dated cheques. If S 138 of the Negotiable Instruments Act 1881 was not what enacted it is for sure that there would be no fear in the minds of the drawees  to get the cheques honoured from their banks. The fear of criminal litigation & imprisonment is the precipitating factor for making timely payments of the cheques.

Moreover, the proposed amendment in the NI Act by removing the provisions of imprisonment does not qualify the basic inter-alia tenets for bringing about these changes viz;

(i) Decrease the burden on businesses and inspire confidence amongst investors;

(ii) Mens rea (malafide/ criminal intent) plays an important role in imposition of criminal liability, therefore, it is critical to evaluate nature of non-compliance, i.e. fraud as compared to negligence or inadvertent omission; and

(iii) The habitual nature of non-compliance”

On none of these doctrines, the proposed dilution/decriminalization of S 138 of the NI Act is justified. The government should refrain from making any such change in NI Act which blows the trust/sanctity of cheques, the banking sector, the businesses and the common man who treat the cheques as a guaranteed payment. By decriminalization of Section 138 the whole section would become nugatory and render toothless and the very purpose of this Section/Act would be defeated.

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One Comment

  1. N B K GANDHI says:

    With banks slashing interest offered in it’s time deposits with no justification, slowly the investing individuals are somehow diverting thier investments to private individuals on a promissory Note which is somewhat protected by Negotiable Instrument Act since bouncing of cheque is s criminal offence. So with this decriminalization the public can be cheated to any extent. God save these marginal investors

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July 2021