Decriminalisation of Section 138 of the NI Act

AUTHOR'S PROFILE: Simran, 2020-25, University School of Law and Legal Studies, GGSIPU

INTRODUCTION

Government guidelines and regulations influence the general economy and straightforwardly sway the activities of financial institutions. The economies around the globe have been hit hard by the COVID pandemic. The emergency has had an undulating impact on different areas of the Indian economy as well. To moderate the impact, the Ministry of Finance reported significant help measures by decriminalizing minor offences for improving business sentiment and unclogging court processes, which is also a remarkable step toward the ‘SabkaSaath Sabka Vikaas’ scheme. One such measure proposed on June 8 is the decriminalization of Section 138 of the Negotiable Instruments (NI) Act, 1881.

FORMULATION OF NEGOTIABLE INSTRUMENTS ACT, 1881

The Negotiable Instruments Act was enacted on 9 December 1881 and came into force on 1 March 1882. It was proposed by the Imperial Legislative Council. Negotiable Instruments have been utilized in the business world for a significant period as one of the helpful modes for the movement of cash. The NI act, 1881 manages negotiable instruments like promissory notes, bills of exchange, cheques, etc. Before 1988 there was no successful, legitimate, or rigid provision to control and punish individuals who would issue cheques without adequate funds in their records. Consequently, bouncing cheques was made an offence in the year 1988, with the inclusion of Chapter XVII in the NI Act, 1881. Therefore, the aggrieved party can file a criminal as well as a civil suit against the accused.

SECTION 138 UNDER NI ACT

Dishonour of cheques was criminalized under the Banking, Public, Financial Institutions and Negotiable Instruments Law (Amendment) Act, 1988. Section 138 deals with the Dishonour of cheques for insufficiency, etc., of funds in the account where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for [a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both. For a better understanding, anyone who’s accused of issuing a cheque without a sufficient amount in his account was liable to pay a fine or get imprisoned, or even both.

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

The main objective of the government behind this amendment was to discourage untrustworthy drawers with the results of criminal preliminary if they issue cheques with the expectation to swindle and provide satisfactory protections to forestall badgering of legit drawers. It also wanted to encourage the usage of cheques as compared to other negotiable instruments. The governing body felt there was a need for rigid discipline and in the span of imprisonment as endorsed under Section 138 of the Acts so they upgraded it from one year to two years via the Negotiable Instruments (Amendment and Miscellaneous Act), 2002 (Act 55 of 2002).

DECRIMINALISATION OF DISHONOUR OF CHEQUES: A BOON OR BANE?

● Cons

1. Digital India is a flagship program of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. To take this forward, the government’s centre of attention is on cashless transactions through cheques. But the proposal to legalize bounced cheques is erroneous as it neglects the very quintessence of cheques and hampers the security. Dishonoured cheques support money exchanges with subsequent issues of falsifying and law implementation issues of an underground economy like ours.
2. The cheque would lose its importance if the level of responsibility is decreased and will potentially become an unessential instrument leading to distrust in trade policies. In a country like India, we obey rules out of dread of getting penalized and not of sheer respect for the law. Decriminalising sec.138 removes the fear of getting prosecuted by the wrongdoers. So, one must acknowledge the fact that dishonouring cheques with men’s rea should be considered a criminal offence, and the accused shouldn't get away scot-free.
3. The substitute cure of civil courts is tedious and expensive. Numerous payees aren’t well-off to manage the cost of civil litigation. This also ends up overburdening the civil courts.
4. The tag of being a 'criminal' welcomes Blacklisting. This effect is seen in every criminal case. The possibilities, for example, of representing public office or getting hired go down for a lawbreaker. A similar effect isn't seen in civil wrongdoings. This very action makes indebted individuals pay on time according to concurred terms.
5. It also hurts the banks as they’ll face hardships in recovering loans from the borrowers. From a bank’s perspective, if a borrower defaults on the loan, proceedings under the existing Section 138 of NI Act and Section 29 of Sarfaesi Act can be issued. If the same is decriminalized, it shall be a big blow to banks in recovery proceedings as the major reason for criminalization was to deter borrowers from issuing false cheques.
6. It leaves the small traders with no grounds to trust or rely upon the cheques as it will prompt an ascent in the quantity of bounced cheques.

● Pros

1. For cases including a modest amount, it has been battled that mere imposition of penalty is an abundant remedy and henceforth there is no need for proceedings which will take ample amount of time and a hefty amount of money and disputes can be resolved easily. Nonetheless, similarly holds no ground as deferred instalments in any case pull in the punishment of interests.
2. The risk of imprisonment for actions or omissions that aren’t necessarily fraudulent or the outcome of malafide intent is a big hurdle in attracting investments. It tries to discover an equilibrium so that men’s rea is rebuffed while other less genuine offences are compounded.
3. Activities taken for the decriminalization of minor offences are required to go far in improving the simplicity of working together and unclogging the court framework and jails. This would let the criminal courts focus more on cases related to national security or public interest at large and gain the trust in the eyes of the public.
4. It also tends to decrease the burden on businesses and inspire confidence amongst investors which might lead to bringing more foreign investors to India and boost its economy.
5. In the majority of the cases, the defaulter at some point or another goes into a settlement with the complainant to make essential negotiations and to arrange the fund howbeit procedures take place in the courts too which has neither rhyme nor reason.

CONCLUSION

The government embedded sections 143A and 148 to make the NI act more viable in furnishing redressal to the complainants and recognizing cheques from other negotiable instruments, whilst proposing a self-contradictory measure to decriminalize and weaken the said Act. It is imperative to decriminalize insignificant offenses and particularly ones whose civil cure is accessible to diminish the weight on the criminal equity framework. But it can't be overlooked that the foundation of the business transactions in this nation is a cheque. Cheque is the most well-known and solid method of instalment and this is simply because of the criminal part of segment 138. In the current circumstance, when rebuilding the business and the economy is vital, decriminalizing the Negotiable Instruments Act would additionally prompt a circumstance where everyone would be giving checks like confections, without keeping up the imperative funds or no funds.

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ENDNOTES

1.'India Code: Section Details' (Indiacode.nic.in, 2021) <https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701&sectionId=45718&sectionno=138&orderno=143>

2.'India Code: Section Details' (Indiacode.nic.in, 2021) <https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00042_00042_1523271998701&sectionId=45581&sectionno=6&orderno=6>

3.'Digitalindia | Digital India Programme | Ministry Of Electronics & Information Technology(Meity) Government Of India' (Digitalindia.gov.in, 2021) <https://www.digitalindia.gov.in/>