The Ministry of Finance vide its Statement of Reason dated 08.06.2020 has announced various steps to provide relief from the economic stress caused due to the Covid-19 pandemic. One such proposal was the amendment of 19 acts to decriminalize multiple minor economic offences, including the offence of dishonour of cheque case under Section 138 of the Negotiable Instruments Act, 1881.
SECTION 138 of NEGOTIABLE INSTRUMENTS ACT 1881
This Section deals with“Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts”
This Section was enacted and incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned.
The purpose of any proceeding, initiated under this Section is that the cheques should not be used by people as a tool of dishonesty. When a cheque is issued by a person, it must be honoured. In the cheque dishonoured case, the person is given an opportunity to pay the cheque amount by issuance of a notice and if he still does not pay, he must face the criminal trial and consequences along with the other cheque dishonour charges.
Thus, this Section casts a criminal liability punishable with imprisonment which may extend to 2 years or with fine which may extend to twice the amount of the cheque or both. The cheque must be issued to discharge a debt or liability as a whole or in part which is legally enforceable and is dishonoured by the bank on presentation. The intent of the legislature to insert the punitive provisions were referred to by the Hon’ble Supreme Court of India in the matter of Modi Cements Ltd. Vs. K.K. Nandi3 wherein the court observed that the prime reason for insertion of such provision is to prevent unscrupulous use of cheques which results in dishonour of cheque case and to ensure credibility of the businesses.
Decriminalization of minor offences is one of the thrust areas of the Government. Decriminalization is also considered to be a significant step in the Government of India’s objective of achieving ‘SabkaSaath, SabkaVikas and SabkaVishwas’.
Reasons for Decriminalising the Dishonour of Cheques
In Meters and Instruments Private Limited and Another vs. Kanchan Mehta, the Court has observed the nature of offence under Section 138 which primarily relates to a civil wrong, and that while criminalising of dishonour of cheques cases has taken place in the year 1988 taking into account the magnitude of economic transactions today.Decriminalisation of dishonour of cheque charges of a small amount may also be considered, leaving it to be dealt with under civil jurisdiction.
1.Currently, the drawer of the negotiable instrument like cheque still has a fear of facing criminal punishment apart from the penalty of repayment of twice the amount. The proposed change in law will remove such fear. The instrument of cheque will lose its good faith and trust in the market, thereby lowering the number of transactions through cheques.
2. To find a balance so that malafide intent is punished while other less serious offences are compounded.
3. Actions taken for decriminalization of minor offences are expected to go a long way in improving ease of doing business and helping unclog the court system and prisons.
4.Criminalizing procedural lapses and minor non-compliances increases burden on businesses and it is essential that one should re-look at provisions which are merely procedural in nature and which do not impact national security or public interest at large.
5.Another cheque dishonour charge includes the offence under Section 138, from the criminality point of view, which has been a petty offence due to its nature. Any such criminal complaint, if the aggrieved person requires, can be filed under Section 420 (Cheating) of the Indian Penal Code, 1860.
6.The number of cases that are pending in several courts in India under Section 138 has seriously cast a shadow on the credibility of our trade, commerce and business. Due to the huge backlog of cheque bouncing cases, the trial of other important and rather more serious cases are sidelined, resulting in the litigants and the public losing faith in the judicial system.
Further, its criminality has also been substantially decreased by inserting Section 147 in the Negotiable Instruments Act in 2002, making the offence punishable under Section 138 of the Act compoundable, which means that the parties on reaching a settlement can mutual agree and drop the cheque dishonour charges against the accused.
7. Decriminalising of section 138 NI Act will not only remove the assurance/ deterrent effect given at present but also effect the reliance placed on banking services creating doubt on the creditability of the negotiable instrument, thereby causing a shift towards cash transaction, which in turn would take us a step back from our Prime Minister’s vision of cashless economy.In another cheque dishonour case, the Supreme Court, recently, vide order dated 05.03.2020, in Makwana Mangaldas Tulsidas v. State of Gujarat & Ors opined on decriminalization of dishonour of cheques of smaller amounts and suggested various ways to deal with the over flooded situation of cheque dishonour cases pending for adjudication across the country.
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