30NOV 2020

Should cheque bounce cases be decriminalised?By SkillxPro

Abstract: The Government is considering decriminalising cheque bounce cases and some other “civil wrongs.” The move has been welcomed by many, in view of the favourable factors like delogging criminal courts and jails; absence of basic criminal law ingredients like mens rea, malafide intention, etc. in many cheque bounce cases, and to top it all, cheque bounces cased lead by COVID-19. To understand and determine the outcome of the proposed reforms better, lets understand the intricacies of cheque bounce cases legal framework in India

You write a post-dated cheque to someone; however, in the meantime due to urgent expenses incurred, the balance gets lower than the amount to be paid. The cheque gets dishonoured, and you find yourself amidst criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881.

Background

The word ‘negotiable’ means freely transferable by delivery. Section 13 of the Negotiable Instruments Act, 1881 gives the act, the power to govern all transactions relating to Promissory Notes, Bills of Exchange, Bank Drafts and Cheques (both order and bearer) in India. It is a predominantly civil legislation, but has criminal provision in Chapter XVII, which makes it a hybrid piece of legislation. Chapter XVII of the Act deals with “Penalties in Case of Dishonour of Certain Cheques for Insufficiency of Funds in the Accounts”. One of the key provisions of the Act, under which most cases of the Act are registered, and which makes it a hybrid piece of legislation is the infamous, Section 138.

When a cheque is dishonoured, for insufficiency of funds or for any of the prescribed reasons, as per Section 138, the defaulter may be sanctioned with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or both. It is also to be noted that it is a non-cognizable offence. The main objective of making the act criminal in nature was to upsurge the credibility of transactions through cheques by making it an offence.

Current Developments

On June 8, 2020 the Ministry of Finance issued a statement of reason titled ‘Decriminalization of Minor Offences For Improving Business Sentiment And Unclogging Court Processes’. Through this, it invited suggestions from various academicians and stakeholders on the same. The key takeaway from the statement was to decriminalise such offences, which are not necessarily fraudulent acts or omissions. It also stated thar criminalising such acts stood as a roadblock in India’s business and investment climate, as legal processes take time. Moreover, though criminal sanctions for minor offences act as a deterrent, at the same time, they also hinder investments. All this, was also said in light of the current COVID-19 situation, as an attempt to revive the slump in the economy.

“Behind the Scenes” of this much awaited Decision:

The main intent behind taking the decision right now was to revive the economy from the shocks that COVID-19 gave. However, the same was also suggested by the Law Commission of India in it’s 213th Report, “Fast Track Magisterial Courts for Dishonoured Cheque Cases” way back in 2008. The report acknowledged that over 38 lakh cheque bouncing cases were pending in various courts across the country then in 2008. These would probably have doubled by now, keeping in mind the rise in use of cheques over the years.

Moreover, decriminalising Section 138, would not put the payee at any disadvantage. This is because, if the aggrieved party wants, it can initiate such criminal complaint, against the defaulter under Section 420 of the Indian Penal Code, 1860, which deals with the offence of Cheating. A penal provision for the same offence is therefore not required.

Further, the criminal element form the section had already been diluted substantially by the insertion of Section 147 in the Negotiable Instruments Act, in 2002, which made the offence, compoundable in nature. This meant that the parties may reach a settlement and mutually agree to drop the criminal charges on the defaulter.

Conclusion

It is to be understood that in commercial transactions, the foremost remedy which the aggrieved party wants, and for which it approaches the court is to get back his money, and not putting the defaulter behind bars. This move is therefore a step in the direction of taking away teeth from the Negotiable Instruments Act, and fostering business climate in the country.

We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at [email protected]

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