138 - Decriminalisation

138 - Decriminalisation

BEDROCK OF THE NEGOTIABLE INSTRUMENTS ACT TO BE SOILED UP?

-RISHU YOGESH PANDEY

There are certain provisions under the law that are criminal and that criminalization has been done with a motive. The motive is simple, i.e. to refrain that very happening by putting up some stricter and daunting restrains over the society. A kind of apprehensiveness is drawn upon the person with such laws which does give fruitful results. But, if that law is decriminalized then wouldn’t the motive behind the law; the very purpose of it will fail?

Negotiable Instruments Act, 1881

An Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques. This, N.I Act contains approximately 147 sections which are amended regularly as per the requirement but section 138, is the one which is used most widely. Section 138 of the N.I Act talks about the dishonor of cheque, it says Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

Shortly after the introduction of the Companies (Amendment) Act 2020, which decriminalizes 46 sections of the Companies Act 2013, the Ministry of Finance put forward a statement of reasons proposing the decriminalization of minor offences. Whilst most of the proposals relate to offences in respect of which virtually no prosecutions have been initiated, the most relevant is the proposal to decriminalize Section 138 of the Negotiable Instruments Act, 1881.

The recent circular dated June 8 (proposal) released by the Department of Financial Services proposes to decriminalize certain “minor offences”, including Section 138, purportedly to “improve business sentiment” and “unclog court processes”.

The interest of the payee would be been overlooked which is improper and not justified, hence justice wouldn’t be served in its truest sense. Also, the deterrence theory i.e. the action of discouraging an action or event through instilling doubt or fear of the consequences would be destructed. Hence, proving the point again.

Despite many changes brought through legislative amendments and various decisions of the courts mandating speedy trial and disposal of these cases, the Trial Courts are filled with large number of pendency of these cases. A purpose that criminalization of the section served was that with a sense of fear among the wrong doers, that, in the situation of dishonor of cheques, the person might get penalized; albeit not in wholesome but it did bring some sense of responsibility and belief of not doing wrong to the payee intentionally or unintentionally. This very purpose made the provision quite effective. Now, one can imagine what would happen if the provision gets decriminalized and that we all know ‘how serious’ parties to a suit of dishonor of cheque or any other civil matter, did take the matter before the provision was criminalized and that any other provision which imposes civil imprisonment upon a person. It’s quite evident that in what length the pendency would increase, because the basic fear will be gone.

The primary target of the criminalization of offense of dishonouring of cheques was to improve the viability of the financial framework. Dishonoured cheques were blocking clearing system and the criminalization of the offense was focused at diminishing this weight.

The position was reiterated by the Supreme Court in 2017 wherein it stated that Section 138 was “primarily a civil wrong”. Right from its inception, the courts have given latitude to the accused to discharge the civil liability to avoid imprisonment. This was not a crime against society, noted in the case of M/S Meters & Instruments v. Kanchan Mehta. To hold an opinion, this much reiteration is enough to let go the strictness of the provision in a limited sense, hence any further dilution of this statutory provision would only diminish the purpose for which it is meant to be.

SECTION 138

The sense of security coupled with necessary flexibility provided a boom to the usage of cheques. Micro, Small and Medium Enterprises (MSMEs) or individual businessmen or even an individual not involved in any business depend intensely on cheques as they have a sense of security and trust with this instrument and think that it’s simple to report in their books of record. Section 138 deals with an irreplaceable portion of any business action - payments and flow of money. This fix, subsequently, can only be said to add validity to businesses and not to pose a threat to them.

Decriminalizing dishonouring of cheques will not bring the law in line with the ground reality. The courts have, through judicial innovations, increased the bite of Section 138, which indeed is a necessity. The legislature has tried to reduce its effect by skewing the balance in favour of complainants to ensure speedy disposal, though it still takes time and even then doesn’t bring surety. So, one can think of its effect after it would be decriminalized. While decriminalizing the dishonour of cheques, it is necessary to protect persons who are already before the courts seeking relief under Section 138, especially bearing in mind the limitation periods applicable to civil disputes. Let’s face it, our civil processes of enforcement of contracts and decrees are largely broken, so why to burden more?

Section 138 serves a required purpose and amendments have further fortified it. Yet, at that point comes a somewhat striking somersault; and a pandemic transforms everything.

Section 138 serves a required purpose and amendments have further fortified it. Yet, at that point comes a somewhat striking somersault; and a pandemic transforms everything.

Therefore, Section 138 strikes a balance and provides an effective legal recourse. Decriminalization would amount to dragging the parties to old legal processes and, in the long term, severely impact the prospects of ease of doing business in India.