Business Laws

Time for decriminalisation of cheque bounce cases?

Vinod Surana July 11 | Updated on July 11, 2021

Decriminalisation is a welcome step but it should not obstruct the smooth operation of economic activity and sufficient measures

The Supreme Court in its recent decision dated April 16, 2021, observed that there are around 35 lakh cheque bounce cases pending before various courts. If the deterrent effect of the present provision was working, then such a huge pendency would not have arisen.

The SC, in Makwana Mangaldas Tulsidas Vs State of Gujarat, said that decriminalisation of cheque bounce cases involving small amounts may be left to the civil jurisdiction, hinting at decriminalisation. The judiciary has increasingly favoured compensation rather than punishment in cheque bounce cases. In Meters and Instruments Vs Kanchan Mehta, the SC even dispensed with the requirement of consent for compounding the offence, if the accused was willing to pay the compensation.

Moreover, pursuing a criminal remedy, may lead to delays. If, in the meantime, the limitation period under the civil action route is exhausted, then the payee is left without any legal recourse. Hence, decriminalisation is necessary. The Section 138 of the Negotiable Instruments Act 1881, treated cheque bounce as a civil wrong, until 1988, when it was brought under ‘criminal offence’, with a prison term of up to two years, while leaving the right to approach a civil court unaffected. This made violation of Section 138, both a civil wrong as well as a criminal act. Between 2002 and 2018, the Section underwent a myriad of amendments and has been subject of various judicial interpretations. In June 2020, the Ministry of Finance proposed the decriminalisation of various minor economic offences, including the offence of cheque bounce under Section 138. While comments were invited, no conclusive decision has yet been taken till date.

Compensation, not punishment

Those who support the decriminalisation note that the main purpose of the provision is compensation and not punishment. The Negotiable Instruments (Amendment) Act, 2018 inserted Section 143A which linked the interim compensation to be paid to the payee with the cheque amount. Moreover, the offence under Section 138, is compoundable and hence, the main focus is on compensation rather than on punishment. As per the ‘reformative theory’, the State should make an attempt to reform an offender rather than merely punishing them. A cheque bounce case is an economic offence and hence, reformation can be brought about by imposing suitable compensation. To imprison someone for the offence may not necessarily lead to reformation, but lead to further debasement. The second argument is that giving both civil and criminal redress to the offence of cheque bounce has clogged the judicial system and has led to multiplicity of proceedings. This concern was also recently identified by the Supreme Court wherein directions were given to dispose of Supreme Court cases expeditiously. Directions were given by the Supreme Court to club together multiple Section 138 cases against an individual (in the last 12 months) in a single proceeding. Such multiplicity of proceedings arose because there were two ways through which remedies could be obtained; payees often explored both, leading to increased load on the judiciary.

Those who oppose decriminalisation anchor themselves in the ‘retributive theory’– severely punish an offender so that it sets an example in the society. They argue that decriminalisation would enable people to issue post-date cheques without an intent to pay, without impunity. The government has not yet made up its mind. Decriminalisation is a welcome step but it should not obstruct the smooth operation of economic activity and sufficient measures should be in place to assure the payees that the cheques presented to them would be honoured.

(The author is Managing Partner & CEO, Surana and Surana, a law firm)

Published on July 11, 2021

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