Decriminalization of Section 138 of Negotiable Instrument Act, 1881
The outbreak of pandemic COVID-19 has almost affected all the sectors of the country and Indian economy is not the exception at all. To mitigate and curb the impact of ongoing crisis, the finance ministry has proposed to decriminalize 39 different offences across 19 separate Acts including decriminalization of Dishonor of Cheque.
This is a step in the direction for improving the ease of doing business, unclogging the courts and moreover, it will attract the investment from investors. So, it has decided to re-look at the procedural deficiencies in aforementioned 19 Acts and to abolish prosecutions in such matters to promote the economy as part of “Atamnirbhar economic package”.
Is decriminalization desirable?
Decriminalization is not desirable. Below are the reasons:
1. The purpose and objectives of Section 138 of Negotiable Instrument Act, are meant to enhance the credibility of the instrument. This promotes the objective of the Government for improving Business and promoting ease of doing business.
2. Apart from cheque bounce, there is an alternative remedy of seeking recovery from Civil Courts. But this is time consuming and is costly procedure as court fee payable at the time of filing of civil suits is much more than the court fee payable at the time of filing of a criminal complaint. Moreover, no summary procedure to be followed in recovery matters.
3. The drawer always has a fear in his or her mind of criminal prosecution and that is why he or she makes sure that the cheques are duly honoured. Now decriminalization will remove such fear and loose the credibility of transactions made through cheques.
4. It has been seen from the experience that a large number of such matters are compounded either before the court or out of the court. The objective of filing of such criminal complaints mostly achieved in a large number of cases
As a tool of Discouragement
1. Decriminalisation will definitely discourage honest parties to adopt cheques as a credible mode of payment. This would be discouraging the Government’s initiative of promoting ease of doing business because small businessman will be the victims.
2. The provision under Section 138 itself has a safeguard for honest drawers. First, only after receiving the notice from the payee or holder in due course, honest drawers have an opportunity to make payment of cheque amount within 15 days and will not face any prosecution. Second, the provision under Section 147 of Negotiable Instruments Act makes the offences compoundable. Therefore, parties can settle at any stage and the drawer can escape further prosecution.
3. Many payees are poor litigants, or belonging to economically weaker background. They may not be able to afford costly and time consuming civil litigation; for recovering their dues as paying the court fees is an another economic burden on them.
Decriminalization of Dishonour of Cheque may also turn out to be a harsh step for a bona-fide holder of cheque seeking penal action from a criminal courts. Above all, Decriminalization will dry up the fear of criminal proceedings, leading to the issuing of cheques with no legal burden of making the payment.
The central government needs to think about other alternatives to the decriminalization of Section 138 of the Act. One remedy can be issue guidelines for banks to levy heavy penalty in cheque bouncing. The impact of decriminalizing this offence may adversely impact the initiative of the Government for improving Business Sentiments. Moreover, purpose of section 138 would become worthless. Thus the proposed amendment may result in a classic example of good intentions gone bad.