The statement released by Ministry of Finance
on 8^th June, 2020 has proposed to
decriminalize a number of economic offences and one of such
offences is the offence under Sec 138 of Negotiable
Instruments Act, 1881 for dishonor of cheque. The Ministry
has invited comments of stakeholders latest by June 23, 2020 on the
decriminalization of 19 legislations as proposed.

ESSENCE OF THE NOTIFICATION ISSUED

The uncertainty and tedious resolution of legal proceedings has
disturbed the ease of doing business in the country. In order to
resolve this issue of ambiguity and pendency of suits in all
courts, the government is inclined towards having a balanced
legislation. In the new legislation, the offences which are less
serious in nature shall be compounded together and the criminals
having a mala fide intention shall be punished as well.

Criminal penalties for minor offences inclusive of punishment of
imprisonment turns out to be foremost reason why both domestic and
foreign investors refrain from investing in India. Thus, government
has constantly been longing on having an apposite measure to
reinstate the trust in doing business.

Moving forward with the objective of ‘Sabka Saath, Sabka
Vikas and Sabka Vishwas’, the government has taken the
significant step of decriminalization of minor offences and has
expected the same to provide ease in doing business in the long
run. It is also expected to improvise the tedious system of legal
proceedings.

LAWS PROPOSED TO BE DECRIMINALIZED

Various sections of different laws have been brought under the
ambit of this notification in order to encourage businesses swiftly
drift over the catastrophe caused by the pandemic outbreak. These
legislations are as follows:

• Insurance Act 1938 (Section 12)




• SARFAESI Act 2002 (Section 29)




• PFRDA Act, 2013 ( Section 16(7) and
  32(1)




• RBI Act, 1934 (Section 58B)




• Payment and Settlement Systems Act,
  2007 (Section 26(1) and 26(4)




• NABARD Act, 1981 (Section 56(1)




• NHB Act, 1987 (Section 49)




• State Financial Corporations Act,
  1951 (Section 42)




• Credit Information Companies
  (Regulation) Act, 2005 (Section 23)




• Factoring Regulation Act, 2011
  (Section 23)




• Actuaries Act, 2006 (Section 37)




• Banking Regulation Act, 1949 (Section
  36AD(2),and 46)




• General Insurance Business
  (Nationalisation) Act, 1972 (Section 30)




• LIC Act, 1956 (Section 40)




• Banning of Unregulated Deposit
  Schemes Act, 2019 (Section 21),




• Chit funds Act, 1982 ( Section
  76)




• DICGC Act, 1961 (Section 47)




• Negotiable Instruments Act, 1881
  (Section 138)




• Prize Chits and Money Circulation
  Schemes (Banning) Act, 1978 (Section 4 and 5).

ACTION SUGGESTED BY THE NOTIFICATION

Based on the feedback received through comments from State
Governments, Union Territory Administrations, civil societies,
academicians, public and private sector organizations and members
of the public, the Ministry shall decide which specific sections
should remain as a criminal offence attracting penalty and which
one should be altered to be decriminalized in order to improve the
ease of doing business in India.

The Ministry suggested that due to increase in burden on
businesses because of non-compliances and minor lapses in criminal
proceedings, certain principles should be kept in mind while
re-looking at the provisions and reclassifying them as compoundable
offences which are merely procedural in nature and have no effect
on national security or public interest at all. These principles
are as follows:

1. 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;




2. The habitual nature
   of non-compliance;




3. Decrease the burden on
   businesses and inspire confidence amongst investors;
   and




4. Focus on economic growth,
   public interest and national security should remain
   paramount.

CONCLUSION

Section 138 of Negotiable Instruments Act, 1881 governs cheque
bounce matters due to insufficiency of funds in the bank account.
The provision provides that any person who has committed an offence
under Section 138 the offence shall be imprisoned for a term which
may extend up to 2 years or with fine which may extend to twice the
amount of the cheque amount, or with both. The section is one of
the most common provisions invoked by lender in the event of
default due to dishonor of cheque. 

However, on one hand the government has tried inserting Section
143, 148 to name a few in the NI Act to make it more operative for
providing redressal and on the other hand, the government is trying
to dilute the act by decriminalizing the provision.

Co-Chairman of Bar Council of Delhi, Mr. Sanjay Rathi, issued a
letter recently to Smt. Nirmala Sitharaman, Union Minister of
Finance, Government of India stating that the Bar Council of Delhi
strongly opposes the decriminalization of provisions of the
legislations as put forward by the notification.

The statutory body representing lawyers, referred the
213^th Law Commission Report along with Sec 138 of
NI Act and a few recent databases and mentioned that a certain
stipulated percentage of litigation pending in the courts comprise
of cheque dishonor cases. The notification regarding
decriminalization would certainly aid in brining down the chart
regarding number of cases but would never serve the main object of
Section 138 of the NI Act.

Adding to this, Bar Council of India’s Member Mr. Ved
Prakash Sharma has said in his statement via his Social media
handle that the Bar Council of India will oppose the action of
government regarding decriminalizing the particular sections
through a General Council meeting to be held on 14^th
June, 2020.

The action put forward by the government is self-contradictory.
Even though this step will definitely attract a number of
investors, provide relief to those who considered this criminal
liability as a big concern and will help in reviving the economic
growth post COVID 19 but this could also lead to a situation where
there would be fear of criminal litigation and imprisonment in the
minds of the perpetrators committing such offences.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

This content is purely an academic analysis under
“Legal intelligence series”.

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