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Decriminalising dishonour of cheque


The Ministry of Finance has proposed an amendment of 19 Acts to decriminalise multiple minor economic offences, including the offence under Section 138 of the Negotiable Instruments Act, 1881 (“Act”).

Decriminalising dishonour of cheque
Written by: Pervez Memon and Zulfiquar Memon
The government of India has been taking various steps to relieve the economic stress of the businesses caused due to the novel coronavirus, by relaxation of laws. Recently, the Ministry of Finance has proposed an amendment of 19 Acts to decriminalise multiple minor economic offences, including the offence under Section 138 of the Negotiable Instruments Act, 1881 (“Act”). The core objective of these proposed amendments is stated to help business overcome the economic crisis caused by the novel coronavirus, to promote ease of doing business and also unclog the court system and prisons.
While the intention with which these amendments have been carried out will only remain to be proven with time, it cannot be ignored that a “cheque” is the most commonly “used” and “misused” negotiable instrument. It is for this reason why the legislature intended to criminalise the dishonour of cheque under Section 138 of Act for insufficiency of funds, etc., in the bank account.
The essence of the Act finds its roots in instilling utmost faith and credibility in these negotiable instruments, making them a suitable option as a credit and payment facility. Keeping this as the guiding force, the Act has been time and again amended to ensure and enhance the faith in negotiable instruments. The criminalisation of writing cheques without a sufficient balance was introduced in India in 1988 by the Act. The said amendment was indeed a step to encourage the culture of use of cheques and to enhance the credibility of the instrument.
The motivation for the amendment was the widespread conundrum of the cheques being dishonoured due to insufficiency of funds or stoppage of payments by the drawer of such cheques. On the other hand, provisions related to summary (speedy) trial were also integrated. Moreover, the offence under the Act was made compoundable; the competent courts to adjudicate upon the cases under the Act were granted more extensive powers to pass an appropriate sentence.
From the key highlights of the Act and its amendments in place, it is clear that the aim of the legislature and rightly so has been consistent with promoting the use of cheques, preventing misuse of cheques and enhancing faith in its credibility as an instrument. However, to the contrary, by the proposed amendment, the Ministry of Finance has sought to decriminalise the dishonour of cheques, which is undoubtedly against the very purpose and principal object of the Act.
The most significant argument, the government is heavily relying upon today to decriminalise the offence of dishonour of cheque is to relieve the economic stress.
The question is whether this move of the government is a considered, calculated and strategised move which will promote the businesses and unclog the courts? Or is it a move which is a hasty, populist and motivated move to cover up the adverse business sentiment given the COVID-19 situation and more of a bid to cover-up the unplanned lockdowns which are the bone of contention for the economic slump. This move appears to do more harm than the intended good for reasons briefly summarised hereinafter.
The proposed amendment is in complete contravention of the object of the Act. The criminal provision is the only deterrent in the minds of the people who otherwise are habituated to abuse the instrument with mala-fide intent. In our country, knowing the snail-paced judicial system and dilapidated civil court functioning on the verge of collapse due to the pendency of suits, it will take decades for the creditor to obtain a decree for recovery of dues. The government’s argument of allowing compounding of such economic offence is without merit, as the Act already has that provision which allows compounding at any stage of the proceeding.
The direct result of such habituated abuse with malafide intent will reduce the credibility of cheque as an instrument, and a large number of people will refrain from accepting the cheques due to the absence of penal provisions for punishing the defaulters. Lack of deterrent provisions in the law as well will diminish the culture of use of cheques and vitiate its credibility defeating the very purpose and object of the Act.
Decriminalising Section 138 of the Act, will also further add on to the cost of litigation burdening the litigant’s pocket. Currently, to recover the money, the holder of a dishonoured cheque has two remedies under the law viz. to initiate a civil suit and to invoke penal proceedings under the IPC and the Negotiable Instruments Act to seek fine and compensation from the drawer of the cheque. One can claim double the amount of the cheque in the form of a fine and recover his legal dues.
Typically, litigants tend to initiate Section 138 proceedings due to lesser court fee being involved as compared to civil proceedings. Upon decriminalising the dishonour of cheque, the holders of such cheques would now be required to turn to civil courts to get respite. All matters pertaining to the dishonour of cheques will not only burden civil courts but would also take away the right of the holders to recover interim compensation up to 20 percent of the total cheque amount right at the very inception of the trial under Section 143 A.
To sum up the adverse effects, it must be borne in mind that cheques have been widely used as a means of credit rather than a means of payment, mainly by issuing post-dated ones. Decriminalisation of the entire Section138 of Act would pave the way for unscrupulous drawers to avoid penal accountability altogether after issuing the cheque and its consequent dishonour.
Removal of penal provisions from the Act will undoubtedly lead to a reduction of the use of cheques both in the commercial world and personal transactions to a boundless extent. It will also become more difficult in the commercial world to make commitments for future payments and to enforce contracts.
As such it appears that this move of the government through the Ministry of Finance will cause more significant prejudice to the commercial world and will drive away foreign investors from making any investments in the country. If the whole umbrella of prosecution for dishonoured cheques is taken away, the future cheques may thus not remain any more a preferred form of payment for both business and personal transactions breaking down an already broken economy. Thus the move recommended by the proposed amendment may result in a classic example of good intentions gone bad.
—Pervez Memon, Senior Partner, and Zulfiquar Memon, Managing Partner, at MZM Legal. The views expressed are personal
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