This article is written by Lalit Ajmani and Sarthak Bhatia, advocates based in Delhi.

Introduction

On 8^th June 2020, the Ministry of Finance through the Department of Financial Services issued a notification under the Statement of Reason titled “Decriminalisation of minor offences for improving Business Sentiment and Unclogging Court Processes” and asking suggestions from various stakeholders qua the possibility of decriminalizing the offence of cheque bounce law that is enshrined under section 138 of the Negotiable Instruments Act, 1881 (hereinafter the “NI Act”) among various other legislations. The fundamental reason behind the idea to decriminalise the cheque bounce law is to bring more investment in the economy, ease the mechanism of doing business, unclogging the process of courts, and lighten the burden of the courts too all in the light of the brutal impact of Covid19 on the economy.

As stated earlier that the Government, via the aforesaid notification, proposed to decriminalise various provisions of law which are strikingly different among each other. Thus, for the sake of brevity, this piece of writing revolves around the idea, rationale, viability and the plausible impact of decriminalization of cheque bounce cases only.

Logic behind the impugned notification

Covid19 has tricked not only just the Indian economy, but the entire world. In these unprecedented times, various measures were taken from time to time in order to curb its impact. The Covid19 brought the gruesome lockdowns which ultimately thrashed the economy and followed by massive lay-offs, unwarranted salary cuts, disruption of small business, worries for real estate and the high chances of delayed payments and cheque bounce cases in the near future.

On these lines, the Government of India had already increased the threshold limit of default from Rs 1 lac to Rs 1 crore stipulated under section 4 of the Insolvency Bankruptcy Code, 2016^[i] followed by the decision of suspending sections 7, 9 and 10 of the Code for 6 (six) months ^[ii].

Thereafter the aforesaid notification dated 8^th June 2020 showing the intention of the Government to decriminalise the cheque bounce law as the possibility of defaults and cheque bounce cases can’t be ignored.

But the mere perusal of the notification apprises us that the intention is to not to come up with an idea to combat the possible defaults but to bring more confidence in the market by easing of doing business. The impact of decriminalizing the offence of cheque bounce on the economy is itself a matter of scientific and rational debate, but the Government believes that the decriminalization will bring the following positive changes among others:

• The chances of imprisonment in the offences that aren’t always fraudulent bring hurdles in attracting investments. Therefore, the act of decriminalising the cheque bounce law will make the investors feel confident.
• The jail term hurts business sentiment; therefore the removal of the same will create positive business culture.
• In the light of Covid 19, the aforesaid step is a necessary measure to deal with a sluggish
• The proposed step will reduce the burden from the shoulders of the judiciary and also bring some relief to the prisons.
• It will also boost India’s objective of achieving ‘Sabka Saath, Sabka Vikas and Sabka Vishwas’.
• Every non compliance in business doesn’t attract mens rea, therefore the cheque bounce law could be decriminalized.

The reasons seem interesting and quite relevant in the light of Covid19 period. But whether the decimalizing section 138 of the NI Act can actually bring more investment, boost the confidence among business and reduce the burden of courts? Therefore in order to assess the viability of the impugned decision, it is imperative to consider the statutory mandate, rationale behind criminalizing the offence at first place, and the stand of the judiciary and other related factors.

Fundamental provision of law

The cheque bounce law is enshrined under the NI Act. It says that if the cheque gets bounced qua the legal liability then the accused person can face the imprisonment of jail upto 2 (two) years or can be compelled to pay twice of the cheque amount or both^[iii].

It is the imprisonment term which has triggered the entire debate. One the one hand it’s often said that the cheque bounce is a civil wrong clothed with the criminal threads^[iv]. It means that the issue of cheque bounce falls in the realm of the civil law, however, in order to create deterrence and to make the instrument of cheque a reliable negotiable instrument, the criminal penalty is being attached to it.

Beginning of the Criminalization of section 138

Interestingly, the cheque bounce law was not always a criminal offence. It was a civil wrong. However, it is only after the 1988 amendment, the cheque bounce case got criminalized with the insertion of chapter XVII in the Negotiable Instruments Act, 1881^[v]. The logic was to create deterrence to curb ever increasing no of cheque bounce cases and make the cheque more acceptable in the commercial and business arenas.

Now after 3 (three) decades, the Government is planning to undo it for the similar results among others for which the criminalization was brought into picture. Irony is that the real issue of dilatory procedure and the long litigation battles to recover the dues are hardly been touched upon.

High Pendency

The horrendous statistics of pending cheque bounce cases is, indeed, a matter of great concern. According to the Ministry of Finance, Department of Finances,^[vi] there are around 1797,47,23,808 cheque bounce cases that are pending across the nation. Moreover, the Hon’ble Supreme Court in the case of ‘Makwana Mangaldas Tulsidas vs. The State of Gujarat and Anr.’^[vii] has highlighted the astounding figure of pending 138 cases. The Hon’ble Apex court has observed that:

“A recent study of the pending cases, reflects pendency of more than 35 lakh, which constitutes more than 15 percent of the total criminal cases pending in the District Courts. Further, there is a steady increase in the docket burden.”

It is submitted that the pendency of these cases is one of the biggest problems and the same needs to be addressed as earliest. Moreover, the pendency also makes the complainants to wait for many years to recover their legitimate dues.

Not to miss that the cheque bounce law is a summons case^[viii]; generally conducted via summary procedure^[ix]. It means that the normal criminal procedure that is enshrined under the Code of Criminal Procedure, 1973 doesn’t apply to such cases; and the endeavor is to complete the cheque bounce cases within 6 (six) months^[x]. But the brutal statistics are mocking on the written letters of law.

Therefore, the main focus should be to expedite the said matters which will definitely bring huge relief to various stakeholders across the nation. Needless to add, the same will bring more investment, the businesses will grow and the creditors would be more confident in furnishing credit to the corporations and others.

Stand of the judiciary

As the notification, inter alia, highlights the concern of the pendency of the cases of long litigation battles. It is, therefore, imperative to study the stand of the judiciary on the issue in hand.

Time and again the Hon’ble Supreme Court of India and various high courts have emphasized on the expedition of 138 cases and the completion of the trial in the time bound manner. In the celebrated case of J.V. Baharuni and Ors. vs. State of Gujarat and Ors^[xi]. The Hon’ble Supreme Court had issued various guidelines and among them 2 (two) are worth to be stated down.

• The courts must try to expedite the cases in a time bound manner and restore the confidence of the common man in the judiciary; and
• The magistrates must encourage the compounding of the offence as earliest. In 138 cases, compensatory damages must be prioritized against the punitive part of the punishment.

In Goa Plast (P) Ltd. v. Chico Ursula D’Souza^[xii] the Hon’ble Supreme Court has observed that the object of the statute was to facilitate smooth functioning of the business transactions. The provision is necessary as in many transactions as the cheques were issued merely as a device to defraud the creditors. Dishonour of the cheque causes incalculable loss, injury and inconvenience to the payee and credibility of business transactions suffers a setback.

On the other occasion, the Hon’ble Supreme Court in the case of Dilip S. Dhanukar vs. Kotak Mahindra Co. Ltd. and Ors.^[xiii] had stated that the punishment/ prosecution  in 138 cases provides deterrence, but the same cannot be used as a measure of persecution. Moreover, the Hon’ble Supreme Court has taken suo moto action in the case of Makwana Mangaldas Tulsidas vs. The State of Gujarat and Anr.^[xiv]  to explore the possibilities to make the cheque bounce cases more expeditious. The case is still pending before the Hon’ble Court and only fate can apprise us how the Hon’ble Court is going to handle such a daunting task.

Plausible harsh impacts

Every amendment brings positive and negative impacts with itself and the said notification is no exception to this axiom. The aim to decriminalise the cheque bounce law will surely put the credibility of cheque in doubt. One of the main reasons behind the large acceptance of cheque is that the payer is always under the threat of facing prosecution if the cheque fails to get cleared. But if the deterrence gets removed by the proposed decimalization, then the credibility of cheque will surely take a new hit and the same will cause a negative impact on the economy. On the similar lines, Hon’ble Bar Council of Delhi has opposed the idea of decriminalizing section 138 of the NI Act^[xv].

Additionally, the possibility of imprisonment is an important factor behind the success and popularity of 138 cases. But if the accused persons have no fear of facing harsh punishment, then it will lose its grip and ultimately bring more roadblocks in the way of recovery from the accused persons. Lastly, the proposed notification doesn’t touch the fundamental problem of long litigations and therefore even if such cases get decriminalized, the 138 trial cases are not guaranteed to get expeditious.

Final Remarks

Surely, the government has taken this step while keeping the best interest of the market at large. But the viability and the plausible impact of the same aren’t in consonance with the intention. The real problem lies in recovering the dues on a timely basis. On the one hand, criminal punishment may act as a deterrent, but on the other the criminal punishment in light of the current situation of Covid19 may seem too harsh to many stakeholders. Additionally, in the absence of mens rea the imprisonment terms seems to be not in consonance with the fundamental principles of criminal law. Therefore, the need is to maintain the balance without losing the essence of the deterrence.

But despite such commendable efforts, the decades old problem of slow and long litigation battles isn’t being touched upon and therefore the same must be addressed on urgent basis because timely recovery trials will definitely fulfill the noble intentions of the government viz, the boost in the investments and ease of doing business in the country.

References

^[i] Notification dated 24^th March 2020 issued by the Ministry of Corporate Affairs

^[ii] Insolvency & Bankruptcy Code (Amendment) Code Ordinance, 2020

^[iii] Section 138 of the Negotiable Instruments Act, 1881

^[iv] Kaushalya Devi Massand vs. Roopkishore Khore,  AIR 2011 SC2 566

^[v] Makwana Mangaldas Tulsidas vs. The State of Gujarat and Anr.SLP (criminal) no. 5464/ 2016.

^[vi] Early resolution of cheque bounce cases dated 1 August 2017; Rajya Sabha

^[vii] SLP (criminal) no. 5464/ 2016. The case is still pending before the Hon’ble Supreme Court of India

^[viii] Section 2(w) of the Criminal Procedure Code, 1973 r/w section 138 of the Negotiable Instruments Act, 1881

^[ix] Section 143 of the Negotiable Instruments Act, 1881

^[x] Ibid

^[xi] (2014) 10 SCC 494

^[xii] AIR 2004 SC 408

^[xiii] MANU/ SC/ 8289/ 2007

^[xiv] Supra Note 04.

^[xv] https://www.livelaw.in/news-updates/bar-council-of-delhi-opposes-centres-proposal-to-decriminalize-dishonour-of-cheques-under-sec-138-ni-act-other-economic-offences-158271 Last seen on 30.06.2020

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