The COVID 19 pandemic has pushed the economic system in direction of the brink
of collapse. With India’s GDP progress going into adverse for
the primary time since 1979, the finance ministry has give you
many schemes and insurance policies to make enterprise transactions extra
environment friendly and forestall the economic system from collapsing.

One such proposal was handed by way of round dated 8^th
June¹ to satisfy the target of SabkaSaath,
SabkaVikas and SabkaVishwas by decriminalizing Dishonour of
Cheque together with 38 different petty financial offenses. The goal
is to ease the trail of enterprise transactions as a result of imprisonment
for such offense can have a deterrent impression on enterprise and
investments.

This motive for such proposal will be drawn from the Makwana
case. In March 2020, the Hon’ble Supreme Court within the case of
Makwana Mangaldas Tulsidas v State of Gujarat,
famous that over 35 lakh circumstances of dishonour of cheque have been pending
and registered a suo motu case to plan a mechanism to dispose off
such circumstances.

Thus, decriminalization would end in a discount of clogged
circumstances.

WHAT IS SECTION 138, NEGOTIABLE INSTRUMENTS ACT,
1881?

Chapter XVII (Sections 138 to 147) of the Negotiable Instrument
Act, 1881 states Penalties in Case of Dishonour of Certain
Cheques for Insufficiency of Funds within the Accounts. This
Chapter was inserted by the Act 66 of 1988 efficient from
1^st April, 1989. The goal was to make enterprise
transactions extra environment friendly and add credibility to cheque
cost.

The Hon’ble Supreme Court within the case of Kusum
Ingots And Alloys Ltd vs Pennar Peterson Securities
Ltd² has laid out the components of part
138 as:

(i) an individual will need to have drawn a cheque on an account maintained
by him in a financial institution for cost of a sure amount of cash to
one other particular person from out of that account for the discharge of any
debt or different legal responsibility;

(ii) that cheque has been offered to the financial institution inside a interval
of six months from the date on which it’s drawn or inside the
interval of its validity whichever is earlier;

(iii) that cheque is returned by the financial institution unpaid. Either as a result of
of the amount of cash standing to the credit score of the account is
inadequate to honour the cheque or that it exceeds the quantity
organized to be paid from that account by an settlement made with the
financial institution;

(iv) the payee or the holder sooner or later of the cheque makes a
demand for the cost of the mentioned amount of cash by giving a
discover in writing, to the drawer of the cheque, inside 15 days of
the receipt of data by him from the financial institution relating to the
return of the cheque as unpaid;

(v) the drawer of such cheque fails to make cost of the mentioned
amount of cash to the payee or the holder sooner or later of the
cheque inside 15 days of the receipt of the mentioned discover

LIABILITY OF DISHONOUR OF CHEQUE

1. Civil legal responsibility

• A Fine twice the quantity of dishonoured cheque below part
  138, Negotiable Instruments Act, 1881.




• Under order 37, Civil Procedure Code, 1908, quantity as directed
  by the court docket.

2. Criminal legal responsibility

Section 138 offers imprisonment of two years or tremendous or each and
drawer shall be prosecuted below part 417 and 420 of Indian Penal
Code.

Pros of decriminalization

1. As per 213th Report of Law Commission of India, over 38 lakh
circumstances of dishonour of cheque have been pending in courts and out of them
over 7.6 lakh circumstances have been pending in felony courts in Delhi at
Justice of the Peace degree alone.

2. Due to the large backlog of those circumstances, trial of different circumstances
are additionally sidelined giving poor title to our felony justice
system.

3. Dishonour of cheque will be penalized below sec 420 IPC,
due to this fact there is no such thing as a want for an additional provision for a similar
objective.

4. Its criminality has additionally been considerably decreased by
making it a compoundable offense, which exhibits the intention of
legislature in direction of lowering the backlog of such case.

Cons of decriminalization

1. The objective of part 138 is to boost the credibility of
cheques thus making enterprise transactions extra protected and environment friendly.
Decriminalising it’d create hindrance in direction of accepting
cheques. This can result in mistrust in commerce practices.

2. The alternate treatment of civil court docket is time-consuming and
expensive. Many payees belong to economically weaker part and
can not afford the expense of civil litigation.

3. The concern of felony prosecution ensures that the cheques are
honoured by the drawer, decriminalization will take away this
concern.

4. A cheque is principally used as technique of credit score within the type of
‘post-dated cheque’, Decriminalising it will strip away
the credibility which might trigger decline to financial exercise.

5. It will over-burden the civil courts.

CONCLUSION

It is vital to decriminalize petty offenses and particularly
ones whose civil treatment is accessible to lower the burden on the
felony justice system. But on the similar time it can’t be ignored
that the spine of enterprise transaction on this nation is
cheque. Cheque continues to be the commonest and most dependable mode of
cost and that is solely due to the felony facet of part
138. Decriminalising it particularly in the course of the time of COVID can do
extra hurt than good. It can improve the variety of cheques bounce
circumstances and might burden the judicial system at a time the place most
bodily courts are closed and conversion from bodily to on-line
court docket continues to be not very environment friendly.

Thus, the proposal will be pointless and will additional trigger
financial downfall.

Footnotes

1 https://www.livelaw.in/pdf_upload/pdf_upload-376169.pdf

2 (2002) 2 SCC 745

Originally revealed 22 August, 2020

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