In the sunshine of disruptions attributable to outbreak of Covid-19, the
Government of India has introduced a slew of measures prior to now
few months. One such vital measure is the Ministry of
Finance’s proposal to decriminalize thirty-nine minor financial
offences together with decriminalization of offence of dishonour of
cheques beneath Section 138 of the Negotiable Instruments Act, 1881
(“NI Act“).

With the target of facilitating ease of doing enterprise in
India and lowering the concern of penalties for minor violations,
varied sections of various legal guidelines have been introduced beneath the
ambit of this notification. These legislations are as follows:

• Insurance Act 1938 (Section 12 and
  Section 103);




• 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(1) and 42(2));




• Credit Information Companies
  (Regulation) Act, 2005 (Section 23(1));




• Factoring Regulation Act, 2011
  (Section 23);




• Actuaries Act, 2006 (Section 37,
  38(2) and 40(2));




• 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(1), 21(2), 21(3), 22, 23 and
  24);




• Chit funds Act, 1982 (Section 76(1),
  76(3) and 77);




• DICGC Act, 1961 (Section 47(1));




• Negotiable Instruments Act, 1881
  (Section 138 and 143(1)); and




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

Whilst a lot of the proposals relate to offences in respect of
which nearly no prosecutions have been initiated, essentially the most
related is the proposal to decriminalise Section 138 of the NI
Act. Section 138 of the NI Act gives that in case of dishonour
of cheque for insufficiency of funds or for any of the prescribed
causes, the defaulter could also be punished with imprisonment for a time period
which can lengthen to 2 years, or with advantageous which can lengthen to
twice the quantity of the dishonoured cheque, or each. This offence
can be made compoundable between the events (consent of each
the events is required) and there’s no requirement to realize
formal permission from the courtroom. Even if there isn’t any consent, the
accused might be discharged if the courtroom is of the discretion that
the complainant has been duly compensated.

While the intent behind this suggestion has been appreciated
by a number of consultants as a result of extreme backlog of
‘check-bouncing’ instances pending at varied ranges of the
judiciary, the announcement has induced a lot furore amongst varied
stakeholders, together with attorneys, banks and many others. The proposed modification
of decriminalization of Section 138 of the NI Act has been opposed
by the Bar Council of Delhi in addition to Bar Council of Maharashtra
and Goa. One of essentially the most vital downsides highlighted by them
is that this measure would lead to encouraging the minds of
perpetrators to defraud and cheat harmless individuals, and there would
be completely no concern within the minds of individuals. Moreover, this might
take away the arrogance and authorized safety of the people in
the judicial system of the nation, thus rendering them helpless.
It has additionally been mentioned that the proposed transfer nearly tends to
negate the very primary scope and object of Section 138 of the NI Act
which was introduced into motion to inculcate the religion and confidence
of the buying and selling neighborhood within the business transactions.

It is necessary to focus on right here that in line with the
213^th report of the Law Commission, roughly 20
p.c of the pending courtroom instances relate to disputes for cheque
dishonour. The concern of felony litigation and imprisonment is the
assuaging issue behind the well timed cost of the cheques. If
decriminalization of the offence beneath part 138 of the NI Act is
accepted, this may increasingly result in a low fee of restoration of dues and the
risk is that the litigation course of will turn into extra
time-consuming. It is not going to be mistaken to imagine that if Section 138
of the NI Act will get decriminalised, the day-to-day business
transactions might go for a toss.

On the opposite hand, it’s also being argued that this proposal
will impactfully scale back the burden on the felony justice supply
system and convey the legislation according to the coverage, legislative and
authorized initiatives undertaken over the past 20 years. Though
there was initially a push to extend using cheques as a
system of non-cash cost, with the appearance of the web,
expertise shortly took over. Following the digital revolution,
cheques have now outlived their use as a type of cost.

Combined with the shift in tradition and commerce, it is vital
to note that the legislature and courts have additionally been setting
the stage for decriminalising Section 138. The proposal to amend
the NI Act was first made by the Ministry of Law in 2011 as an element
of a pendency discount transfer. Thereafter, an inter-ministerial
group, arrange in 2012 to look into the coverage and legislative
adjustments to curb the growing variety of cheque-bouncing instances,
urged decriminalisation and proposed sure amendments on that
foundation. Some of the ideas included using various
dispute decision mechanisms on the traces of Section 89 of the
Code of Civil Procedure, via arbitration, conciliation,
judicial settlement (together with settlement via Lok Adalats), and
the introduction of a abstract process for coping with cheque
bouncing instances. It was additionally urged that the courtroom charge could also be
made ad-valorem to behave as a deterrent for indiscreet and vexatious
proceedings. Unfortunately, nevertheless, these proposals by no means got here
into impact.

At varied levels, the courts have diluted the strict procedural
provisions of felony legislation within the context of this offence, clearly
recognising {that a} civil mistaken was being tried beneath the veil of
felony legislation. This place was reiterated by the Supreme Court in
2017 within the case of M/S Meters and Instruments Private Limited
vs Kanchan Mehta¹ whereby it said that Section
138 was “primarily a civil wrong”. Right from its
inception, Indian Courts have given latitude to the accused to
discharge the civil legal responsibility to keep away from imprisonment. This was not a
crime towards society.

In order to achieve a consensus, the Ministry of Finance invited
the feedback of state governments, UT administrations, civil
society, academicians, private and non-private sector organisations and
members of the general public on the mentioned proposal. Given the professionals and cons
of decriminalization and the completely different views, as outlined above,
the incumbent Government might want to strike a steadiness and
pursuits of varied stakeholders will should be taken into
consideration, whereas focusing concurrently on an efficient
redressal mechanism for such offences.

Footnote

1. Criminal Appeal No. 1731 OF 2017

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