The Ministry of Finance last week issued a notification asking the stakeholders for suggestions on decriminalization of around 39 sections which contain minor offenses under 19 different acts and legislation. This move was taken to improve the ease of doing business in India and help unclog the piles of pending cases in the court system and prisons. The legislations include LIC Act 1956, PFRDA Act 1999, RBI Act 1934, SARFAESI Act ( Repayment of bank loans) 2002, Negotiable Instruments Act 1881, Banking Regulation Act 1949 and Chit Funds Act 1982.
Most importantly the list also includes the decriminalization of Section 138 of Negotiable Instrument Act, under which cheque bouncing is a criminal offense.
According to the 213th Law Commission Report, there are about 40 lakh cheque bounce cases, which constitutes more than 15 percent of total pending criminal cases in district courts. The Apex Court in a suo moto (on its motion) case has recently also observed that as per a study, more than half of the pending cases, i.e. more than 18 lakh cases, are pending due to absence of accused.
Recently in a letter addressed to Nirmala Sitharam, the Confederation of All India Traders (CAIT) has suggested the formation of fast track courts at the district level to deal with the cases of bounced cheques on an immediate basis and bring amendments in Section 138 of the Negotiable instruments Act, 1881.
Section 138 of the Negotiable Instruments Act creates 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 is to be issued to discharge some debt as a whole or in a legally enforceable part and it is dishonored by the bank on presentation.
When the cheque is issued for a time-barred debt it cannot be enforced under the law. This was held by Supreme Court in the case of A.V. Murthy vs. B.S. Nagabasavanna [(2018)13 SCC 663] and also in Sasseriyil Joseph vs. Devassia [SLP (Cri.) No. 1785 of 2001].
The Dishonour of cheque, which originally gave the cause of action to file a civil suit, was criminalized in the year 1988 with the insertion of Chapter XVII comprising Section 138 to 142 in the Negotiable Instruments Act.
With the enactment of Acts in recent times, it has been observed that there have been instances of merging and mixing up of various legal forms. The provisions under Section 138 of the Negotiable Instruments Act, where the civil remedies sit alongside some criminal offenses. This often strikes out the difference between criminal law and civil law proceeding.
In Criminal law, the punishment is imprisonment and still accused is guaranteed certain fundamental rights. But when under civil law, punishments are like imprisonment or something equivalent, then the entire purpose of treating it as civil law and the protections get defeated.
The offense under Section 138, from the criminality point of view, is often treated as a petty offense. If an aggrieved person wants to file a criminal case, the other way out available is Section 420 (Cheating) and Section 406 (Criminal Breach of Trust) of the Indian Penal Code, 1860.
Section 147 in the Negotiable Instruments Act in 2002 has made the offense punishable under Section 138 of the Act compoundable, which means that the parties on reaching a settlement can mutually agree and drop charges against the accused.
According to various theories, the thing that differences between civil law and criminal law is the stigma that attaches to the accused. The tag of him being called as a “criminal” makes the society reject him.
The proposal as suggested by the ministry, if implemented, will have both pros and cons on the cases pertaining to the dishonor of cheques. The aim behind this is that providing penal provisions for such an offense which is not fraudulent is a big hurdle in attracting business and investments from the governments and this would improve business and also in unclogging the court processes.
The Supreme Court had recently in Makwana Mangaldas Tulsidas vs. State of Gujrat & Ors. SLP (Cri.) No. 5464 of 2016 held on decriminalization of dishonor of cheques of smaller amounts. The Court also suggested various ways to deal with the over flooded situation of cheque bounce cases across the country. The other most important suggestion made by the court was developing a mechanism for pre-litigation settlement in these cases. It was also suggested that the National Legal Services Authority may come with a scheme of disposal of cases through alternative dispute redressal methods.
Following the decriminalization of dishonor of cheques, the civil court may be given jurisdiction to deal with the cases relating to dishonor of cheques of small amounts, it will have so many benefits. It will reduce the number of frivolous suits filed in civil courts since the party will be having an additional burden of paying court fees for filing of the plaint and will make the person think twice before approaching the court.
Decriminalization of cheques can also be a swingeing step for the bonafide holder of cheque seeking penal action from criminal courts. Instead of this, the other methods which can be used by the government are to lay guidelines for the banks in India to levy heavy fines on cheque bounce cases. Electronic methods of payments should also be promoted by the government as it is more viable which can easily set aside the burden by cheque bounce cases.
Bar Council of India member Mr. Ved Prakash Sharma has said in a statement that BCI will oppose the move of the Central Government to decriminalize Cheque Bounce under Section 138 Negotiable Instruments Act. The Bar Council of Delhi has also opposed the Union Governments' decision.
The finance ministry has invited comments and suggestions to be submitted to the Department of Financial Services at the email address bo2@nic.in within 15 days, i.e. June 23 (Today).
Decriminalization of compoundable offenses that are technical or procedural in nature is beneficial to the stakeholders. At the same time striking a balance between the welfare of the aggrieved person and the ease of business for corporates is also important. The other resolution methods such as alternate dispute redressal mechanisms as opined by the Apex Court in a series of judgments should also be used to ease out the burden of lakhs of pending cases across the country.
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