Decriminalizing cheque bounce

The Announcement

Ministry of Finance has announced that it intends to decriminalize a list of 39 minor offences relating to 19 different laws which are not serious in nature, however, the punishment is punitive. Their rationale is, if we stop criminalizing some small offences, it could improve significantly improve ease of doing business in India (and the rankings), meanwhile also unburden our overburdened judiciary, so that they can focus on more critical crimes.

So far, the rationale does make sense as various regulations which relate to minor technical defaults or procedural lapses ensure criminal liabilities, leading to a huge stack of judicial cases or undue hardships to the entrepreneurs. However, when you look at the entire list, one of these offences listed, relates to dishonoured cheques, which criminalizes cheque bounce due to any reason, as a criminal offence and punishable with jail time. This hasn’t gone down well amongst the business fraternity.

What is the law surrounding cheque bounce?

Under the Negotiable Instrument Act, 1881 section 138 mandates that if a cheque duly presented is returned unpaid by the bank, because of insufficient balance, the person issuing the cheque is deemed to have committed a criminal offence and can be imprisoned for a term extending two years or with fine up to twice the amount of cheque, or even both. In 2012, the apex court further added signature mismatch as an offence similar to insufficient funds and thereby entailing the same punishment. Thus, a simple failure to maintain sufficient balance or signing the cheque incorrectly may lead to jail time up to two years and a hefty fine. However, the section further provides that the drawee must notify the drawer of the cheque being returned unpaid within 30 days of receipt of information from the bank, and demand payment of the amount in such written notice. The drawee may opt for judicial proceedings if the drawer fails to make the payment within 15 days.

Why is the offence being de-criminalized?

As per the 213th Law Commission Report, about 40 lakh cases are pending in Indian courts which relate to cheque bounce. One can understand the quantum of these cases by assuming that even if all the courts work full time on these cheque bounce cases, it would still take years to clear all these pending cases. It is unjust to expect the judiciary to clear these cases as there are many other important and long overdue cases pending with the courts. Ranjan Gogoi, the Chief Justice of India while addressing a public function mentioned that of about 90 lakh pending civil cases in India, there are at least 1,000 cases which have been pending for more than 50 years while 2 lakh cases pending for more than 25 years. The judiciary is overburdened and the cheque bounce cases are not helping the situation. However, the pending cases do not depict the entire picture as many of these cases are pending owing to the absence of the accused. Unless the accused shows up for the hearings, it takes 2 to 15 years to dispose of these cases. Meanwhile, most of these cases of are being forced to be settled by arbitration or settlement out the course as neither the court can dispose of the cases quickly, nor the delay helps the plaintiff as the cost of compliance turns heavier.

Besides, these cases are unlike other criminal cases where the Government agencies are involved who investigate or provide reports of the offence. Here, it is the responsibility of the plaintiff to prove the case, provide all evidence and bring in the witnesses, which further adds to the hardships. So, criminalizing the offence, is in no way helping in expediting the redressal of the situation.

Why the offence shouldn’t be decriminalized?

Yes, there is no speedy redressal of the case, however, the offence being criminal in nature itself is a big deterrent to committing the offence. Nobody wants to have a criminal record, and thus, there is an unsourced trust that the issuer of the cheque would come good on his obligation. If cheque bounce is de-criminalized probably the way business people see a cheque would change, the trust on cheque payments would be reduced to an extent.Real estate developers who sell flat often arrange for housing loans as well. Such a transaction is facilitated by getting post-dated cheques from the homebuyer. Of course, there are collateral securities, however, it is not easy to liquidate them, as many delaying tactics and stay orders can be obtained. On the other hand, if the post-dated cheque provides an added comfort without any efforts, as the issuer can go to jail if the cheque bounces. It’s much easier to initiate proceedings in case of cheque bounce than taking possession of the house.This is the reason why the industrialists and the professionals are not convinced that de-criminalizing the cheque bounce cases is a prudent move. A bounced cheque is as good as paying someone with counterfeit currency. It’s a serious crime, amounting to cheating, as the receiver is under the false impression that the issuer has sufficient money to pay off his dues. Hence, cheque bounce cannot be remarked as a minor offence.

What else could be done?

Amongst other amendments, even implementation of Insolvency and Bankruptcy code whereby lenders could initiate insolvency proceedings against the borrowers in default has also been suspended for another year due to COVID-19 pandemic – a move to ensure courts are not overwhelmed with cases. No doubt the courts are overburdened with legal cases, however, de-criminalizing the offence isn’t a solution. The Government should look to simplify the procedures. To avoid undue hardships to the issuer in genuine cases, the rules may provide for grace days in the clearance and settlement process, to allow issuer a second chance to clear the payment due. The procedure for enforcing a bounced cheque and the process of prosecution should be simplified for speedy redressals. However, if the amendments go through, arbitration, conciliation or settlements would be the only remedies against bounced cheque.

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