Decriminalising Dishonour of a Cheque - A Step Forward?

I. Abstract

A cheque is one of the most reliable modes of payment in the business sector and is considered a backbone of doing business transactions in India. The reliability of transactions through cheques is possible only because of the criminal nature of Section (“Sec.”) 138. The provision of Sec. 138 was added to punish dishonest drawers and to regain the credibility of investors. Recently, there has been a lot of discussion going on to decriminalise the criminal aspect of the dishonour of cheques. The corona virus outbreak has created an economic downfall in the country which may lead to a mega recession. To avoid such a situation and increase foreign investments, the Ministry of Finance has proposed to decriminalise Sec. 138. But it cannot be disregarded that the legislature prima facie never intended to punish the drawer. The Supreme Court (“SC”) time and again has emphasised that the intention of the legislature behind Sec. 138 is not to punish the drawer but to give them enough time to repay the debts. Decriminalising the provisions of Sec. 138 can do more harm than good as it will fail to serve the reason behind decriminalisation; rather, it could cause further economic downfall.

II. Introduction

The Negotiable Instruments Act, 1881 (“NI Act”) was drafted in 1866 and was enforced in 1881. Before 1988, there was no penalty for the dishonour of cheques. However, due to the rise in cases of cheque bounce and people taking undue advantage of the same, in the year of 1988, Sec. 138 to 142 (Chapter XVII) were inserted in the Act vide Sec. 4 of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act. This made dishonour of the cheque a quasi-criminal offence. A quasi-criminal offence is a civil suit that contains some elements of criminal proceedings. In this kind of suit, though it is a civil suit, the court may punish an accused for his act as if it was a criminal offence. Sec. 6 of the said Act defines a cheque and Sec. 138 deals with the punishment for the dishonour of the cheque. The ambit of Sec. 138 was explained in G.K. Mohanty v. Pratab Kishore Das wherein the Court observed that “if a person issues a cheque without appropriate balance in the bank, then such person will attract the liabilities mentioned under Section 138.”

In June 2020, the Ministry of Finance proposed a Bill for decriminalising many minor offences, one of them being Sec. 138. The main reason for this proposal is to increase foreign investments and to bring back the country’s economy on track, which has been gravely affected by the corona virus outbreak. But, it cannot be disregarded that cheque is one of the most reliable negotiable instruments which not only promotes the ease of doing business in India but also promotes the idea of a cashless economy, which was laid in 2016 by the implementation of demonetisation. Almost every business entity and investors rely upon cheques for transacting payment. Decriminalising the offence might also bring instability in the corporate sector. It is the criminal nature of Sec. 138 that ensures that the cheques are honoured in time. Therefore, the proposed Bill may turn out to be a bad law. This article furthers the intention of the legislature behind Sec. 138 and analyses the drawbacks of decriminalisation of the dishonour of cheques.

III. The Legislative Intent of Sec. 138

The Parliament had chosen to add Sec. 138 to introduce financial discipline and ease in business transactions. Sec. 138 was introduced with the purpose to provide compensation and not punishment. Prior to the addition of Sec. 138, the aggrieved party was left with the only remedy of filing a claim. The purpose of bringing in the new provision is to make the people dealing in business transactions work with a sense of responsibility because a lapse on their part shall make the person liable for criminal prosecution. Furthermore, Sec. 147 makes it a compoundable offence, which primarily focuses on compensation. When a person draws a cheque and it gets dishonoured, prima facie he does not attract the liabilities mentioned under Sec. 138. If the cheque gets dishonoured, the payee can serve the drawer with a legal notice of 15 days to repay the debts. The Apex Court in Rajneesh Aggarwal v. Amit J. Bhalla has observed that “if the drawer pays the money on the same day or within 15 days of the receipt of legal notice, then there would be no offence and the payee cannot file any case against the drawer.” So, the offence is deemed to be committed after the expiry of 15 days from such notice. But if the drawer still does not pay, he must face the consequences of a criminal trial. Moreover, as mentioned above, that Sec. 147 makes it a compoundable offence; therefore, the parties can settle at any stage, and the drawer can escape further criminal prosecution.

Therefore, the author contends that the intention of the legislature is prima facie not to punish the drawer; rather, it gives enough time to a drawer to repay the debts and escape further prosecution.

IV. Drawbacks of decriminalisation of the dishonour of cheques

It is pertinent to refer that the SC on April 2021 has observed that there are over 35 lakh cheque bounce cases pending in different criminal courts. It should be noted here that the reason behind adding Sec. 138 was to develop a sense of responsibility amongst the drawer and to maintain discipline in commercial transactions. Therefore, the SC had issued a number of directions, including asking the Government to amend the laws to dispose of the cases expeditiously rather than hinting towards decriminalization.

Thus, the author contends that the proposed Bill has certain drawbacks, as elaborated below.

1. As per the 213th report of the Law Commission of India, about 40 lakh cheque bounce cases are pending in the Indian Courts. The Indian Courts are already struggling with the piles of cases pending before them. If Sec. 138 is decriminalised, all these cases will alone fall under civil jurisdiction and this situation will overburden the Civil Courts. Therefore, the inability of the civil courts to adjudicate these cases on time will be a serious infringement of the fundamental right to speedy trial of a litigant.

2. The SC, in Makwana Mangaldas Tulsidas v. State of Gujarat, said that “cheque bounce cases involving small amount may be left to the civil jurisdiction”, hinting at decriminalisation. But it cannot be disregarded that many payees belong to the economically weaker section of society. They may not afford costly and time-consuming civil litigations for recovering their dues. The role of the Indian Judiciary is to promote public welfare and not to put them in a situation of vulnerability.

3. Sec. 138 ensures that the cheques are honoured by the drawer on time. Because the drawer is afraid of being prosecuted, he ensures that the cheques are properly honoured. Out of the five schools of Criminology, classical school of criminology talks about the relationship between law and deterrence in crime and it believes that the punishment should fit the crime and not the criminal. To reduce the crime, you need to create deterrence in the mind of people. The sentencing requires considerations beyond nature of crime and circumstances surrounding it. Therefore the best way to reduce the crime is through deterrence and decriminalising Sec. 138 will remove the fear of prosecution and people will lose faith in the credibility of a cheque.

4. A cheque is the backbone of doing business transactions in a diverse country like India. The Criminal nature of Sec. 138 ensures the credibility of investors in transacting business through cheques and brings ease in banking operation. Decriminalising it might create fear in people’s minds from accepting payment through cheques due to the fear of it getting dishonoured and no stringent law governing the same. This would discourage the Government’s initiative of promoting ease of doing business.

The country is already going through a tough phase due to the COVID-19 pandemic which has resulted in severe economic instability. It is therefore contended that decriminalisation will not be a fruitful decision because the very purpose of doing so seems to be unachievable. Henceforth, it is of utmost importance to rectify these drawbacks for improvement in the proposed Bill.

V. Conclusion

Every coin has two sides; likewise, every law has its pros and cons but decriminalising it is in no way a suitable solution. The purpose behind decriminalisation is to improve foreign investments and overall country’s economic growth. But, since people will fear to accept payment through cheques, it might create a hindrance in the economic growth. Moreover, since the intention behind Sec. 138 is to safeguard the rights of payees, investors and honest drawers, decriminalising it might discourage the Government’s initiative of promoting ease of doing business. Further, the time lapse between crime and punishment established by law had an impact on whether the person related the punishment to the crime. However, since Civil Courts take a longer time to dispose of the cases as discussed by the author, there might be the hope of getting away with the crime. Decriminalisation will encourage people to commit crimes because as per the classical school, people commit a crime when the benefit outweighs the costs. Therefore, the crime can be prevented by making sure that the cost, that is, the punishment according to law outweighs the benefits. Hence, it can be said that decriminalising the offence of the dishonour of cheque especially in this pandemic situation is not a wise step.