DECRIMINALIZATION OF SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT: EFFECTS OF INEXPEDIENT AMENDMENT

Edited by – Tirtharaj Basu Ray


This article is written by Mudit Goswami, a law student at Amity University, Madhya Pradesh.


INTRODUCTION: –

The eruption of the COVID-19 pandemic affects practically all the divisions over the globe and economy being no special case. The pandemic is causing tearing impact on different segments of the Indian economy also. In order to alleviate the impact of this pandemic on the economy, the Central Government declared thirty-nine significant help measures through a notification[1] in the zones of Insurance Act, SARFAESI Act, Banking Regulation Act, PFRDA Act, Income Tax, GST, Customs and Central Excise and so forth with the plan to support and strengthen the economy. One of such measure which the Ministry of Finance has declared is decriminalization of offense of disrespect of checks under Section 138 of the Negotiable Instruments (NI) Act, 1881, with the aim to guarantee ease of working together and pulling in capital from both domestic and international business.

Ministry has ruled out that the idea of pendency in all levels of the courts and the time taken for cases to be settled, administrative measures have been considered to help re-establish trust in working together. Also, it is additionally significant that equalization found so that malafide intention is rebuffed while various less serious offenses are exacerbated. However, this decriminalization removes the only protection for the small businessmen who flexibly merchandise to huge organizations in a plight. This was the main weapon for a small businessperson against the large ones that he had a cheque given by big businessmen or agents and he knew whether he defaults he can drag them to court. This article is centres around the effects and attempt of Central Government of decriminalization of Section 138 of the Negotiable Instruments Act, 1881, in such declining state of economy.

WHY DECRIMINALIZATION IS AN INEXPEDIENT ATTEMPT?

The Negotiable Instruments Act was passed in the year 1881, Chapter XVII of the Act including Section(s) 138 to 142 was embedded by the Banking, Public Financial Institutions and Negotiable Instruments Law (Amendment) Act, 1988. Section 138 gives that if there should be an occurrence of dishonour of cheque for the inadequacy of assets or any of the recommended reasons, the defaulter can be rebuffed with detainment for a term which may stretch out to two years, or with fine which may reach out to double the amount of the cheque given, or both. Although, the Supreme Court of India in a plethora of decisions has held that the offense submitted under Section 138 of the Act is to a greater extent a civil wrong in nature. The proposed change in the said act depends on certain standards featured in the notice by the Ministry of Finance.  According to the ministry following accompanying standards ought to be remembered when settling the criminal offenses to compoundable offenses:

“(i) Decrease the burden on businesses and inspire confidence amongst investors;

(ii) Focus on economic growth, public interest and national security should remain paramount;

(iii) Mens rea (malafide/ criminal intent) plays an important role in imposition of criminal liability, therefore, it is critical to evaluate nature of non-compliance, i.e. fraud as compared to negligence or inadvertent omission; and

(iv) The habitual nature of non-compliance.”[2]

Decriminalizing of Section 138 implies that the guarantor of a dishonoured cheque will confront no criminal obligation regardless of him being a constant wrongdoer or in the event that he has given the check with malafide aim. A creditor or lessor will remain at the weak side if the proposed revision becomes effective since the proposition does not affect a guiltless individual and an individual giving cheque with a mala fide purpose of not making the payment. Here, it is relevant to take note of the 213th report of the Law Commission[3] that just about 40 lakh of the pending suit identifies of dishonored cheque. A Supreme Court Bench headed by Justice Adarsh Kumar Goel, dated 20th June 2018, that more than 20 per cent of the cases in subordinate courts managed dishonoured cheques which is a criminal offense including penal as well as pecuniary punishment.[4] This decriminalization will prompt a low pace of recuperation of payable amount and the chance is that the prosecution procedure will turn out to be additional tedious.

The elective cure of looking for recuperation from Civil Courts is tedious and is expensive as court charge payable at the hour of documenting of common suits is substantially more than the court charge payable at the hour of recording of a criminal grievance. The money drawer has a dread of criminal arraignment and that is the reason he ensures that the given cheque is properly regarded. Decriminalization will evacuate such dread. This will bring down the believability of exchanges made through the given cheques. Decriminalization will also demoralize legit parties of the cheques, to receive cheques as a dependable method of payment. This would be demoralizing the Government’s drive of advancing Ease of Doing Business attempt in declining economic state. Numerous payees are helpless prosecutors, workers or having a place with monetarily more fragile foundation. They will be unable to manage the cost of expensive and tedious common prosecutions for recuperating their contribution.[5]

Section 142 of Negotiable Instruments Act itself contains protection which is to be attempted by the Judicial Magistrate/Metropolitan Magistrate before taking discernment of any offence culpable under Section 138 of the Negotiable Instruments Act. They can practice legal attentiveness at the hour of taking perception. It has been seen from the experience of Courts dealing with the criminal offences documented under Section 138 of the NI Act that countless such issues are settled either at the first date of appearance of the underlying stage for these filing procedures. Then again, availing of a common cure may not create alluring outcomes since the offended party may confront troubles in getting the declaration as well as effectively executing such announcements agreeable to him.

EFFECT OF THIS AMENDMENT ON THE LEGISLATIVE EXPECTATION OF SECTION 138: –

Section 138 if the NI Act is an instrument which gives the more full-verification method of managing the defaulters, payment of amount through the cheques is one of the most confided in manners for making the payment of the desired amount. This also provided a better response to recover the amount or obligation when payments are made through cheques. Different decisions have been conveyed by the courts underscoring the significance of Section 138 and featuring the object of the Act. In M/s. Dalmia Cement (Bharat) Ltd. v. M/s. Galaxy Traders and Agencies Ltd. and Ors.[6] our apex court have stated the object and purpose of Section 138 of the NI Act.

The court observed that “The Act was enacted and Section 138 thereof incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned. The law relating to negotiable instruments is the law of the commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another. To achieve the objectives of the Act, the legislature has, in its wisdom thought it proper to make such provisions in the Act for conferring such privileges to the mercantile instruments contemplated under it and provide special penalties and procedure in case the obligations under the instruments are not discharged. The laws relating to the Act are, therefore, required to be interpreted in the light of the objects intended to be achieved by it despite there being deviations from the general law and the procedure provided for the redressal of the grievances to the litigants.”

Decriminalization of the said Section will remove the very assurances which enlightened at the time of enactment and incorporation. Also, dishonour of cheque can’t be named as a minor offense, with no malafide purpose being available. While the rule itself forces such a severe obligation which doesn’t require nearness of mens rea, still, if the procedure is taken a gander at intently, a component of mens rea can be perceived. Absolutely, at its center, disrespect of check is an inability to pay one’s and obligation. At the point when an individual discard to pay the due sum to someone else, it is only that an exclusion. Then again, giving a cheque is a plain demonstration of commission, which is joined by an inferred, and frequently express guarantee, that the cheque would be regarded upon introduction.[7]

It is genuine huge quantities of such cases are pending under the steady gaze of the courts[8], and the officer’s courts particularly are overburdened and removals get postponed. Be that as it may, decriminalization without anyone else won’t tackle the issue. While the strain on the criminal courts will be decreased, it will essentially move the weight onto the common courts, in such a case that the holder of the dishonoured cheques can’t suit a criminal case, that person will unquestionably file a civil suit. Along these lines, the general pendency will stay unaffected and the weight might be moved from one piece of the legal framework to another. Therefore, relieving the Indian courts does not seem to be the legitimate ground to decriminalize Section 138 of the NI Act.  

CONCLUSION: –

Decriminalization Section 138 will dissipate the dread of criminal procedures, prompting the giving of such instrument i.e. cheque with no legitimate weight of producing payment for the given or satisfied by the parties. The government needs to consider different options in contrast to the decriminalization of Section 138 of the Act. A well-balanced proposition must be used to fix a certain amount to limit for invoking the criminal jurisdiction in dishonouring of the cheques. Executing this amended proposition by the central government will make a bigger number of obstacles for a superior economy than lessening one. By the way of a plethora of cases our apex court has stated that Section 138 is a civil wrong in nature anyway it was given a criminal edge to punish the guilty parties.

After taking into consideration of the offence, the  civil courts may be given a jurisdiction to mediate upon cases identifying with the dishonouring of cheques but with a small amount or with certain limit, it will lessen the number of trivial suits in the courts since the parties to the cheque, will have an extra weight of paying court expenses for filing a suit. Having said that, the author would suggest that Section 138 of the NI Act ought to stay on the rule book and ought not be decriminalized. The effect of decriminalizing this offense may unfavorably affect the activity of the Government for improving Business Sentiments and advancing the declining economy for a momentary aspect, but the enshrined nature of the Section due to which it was came into the frame will be baffled.


[1] Decriminalisation of Minor Offences For Improving Business Sentiment And Unclogging Court Processes, (2020), https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf (last visited Jul 16, 2020).

[2] Id

[3] Fast Track Magisterial Courts for Dishonoured Cheque Cases, (2008), http://lawcommissionofindia.nic.in/reports/report213.pdf (last visited Jul 17, 2020).

[4] Himanshi Lohchab, Traders move to Nirmala Sitharaman over 40 lakh pending cases on bounced cheques – The Economic Times The Economic Times (2020), https://economictimes.indiatimes.com/news/economy/policy/traders-move-to-nirmala-sitharaman-over-40-lakh-pending-cases-on-bounced-cheques/articleshow/73979479.cms?from=mdr (last visited Jul 17, 2020).

[5] Yashika Sarvaria, Decriminalising The Offence Of Dishonour Of Cheque: Why Not Desirable? – Finance and Banking – India Mondaq.com (2020), https://www.mondaq.com/india/financial-services/955680/decriminalising-the-offence-of-dishonour-of-cheque-why-not-desirable (last visited Jul 29, 2020).

[6] Appeal (crl.) 957 of 2000

[7] Rohan Thawani, Decriminalization Of Dishonor Of Cheques – A Step Backwards Bar and Bench – Indian Legal news (2020), https://www.barandbench.com/columns/decriminalization-of-dishonor-of-cheques-a-step-backwards (last visited Jul 29, 2020).

[8] Supra Note 3 see also Himanshi Lohchab, supra note 4


Written by –

Author Name – Mudit Goswami

Published on – 03/08/2020