FinMin Proposes Decriminalisation of ‘Minor Economic Offenses’ Including, Cheque Bouncing; Seeks Public Opinion
Cheque dishonour or cheque bouncing, due to insufficient funds, is a serious offence and can lead to imprisonment. However, with an aim of improving business sentiment and unclogging court processes in the wake of economic crisis caused due to lockdown, the ministry of finance has proposed to decriminalise cheque bouncing, say reports.
This is part of the effort to decriminalise a list of offences which it calls 'minor economic offences', for which the ministry has proposed changes in as many as 19 laws.
"Criminal penalties including imprisonment for minor offences act as deterrents, and this is perceived as one of the major reasons impacting business sentiment and hindering investments both from domestic and foreign investors. This becomes even more pertinent in the post COVID19 response strategy to help revive the economic growth and improve the justice system," the ministry says in a statement.
The 19 Sections of various laws include, Insurance Act 1938 (Section 12), SARFAESI Act 2002 (Section 29), PFRDA Act, 2013 ( Section 16(7) and 32(1)), RBI Act, 1934 (Section 58B), Payment and Settlement Systems Act, 2007 (Section 26(1) and 26(4)), NABARD Act, 1981 (Section 56(1)), NHB Act, 1987 (Section 49), State Financial Corporations Act, 1951 (Section 42), Credit Information Companies (Regulation) Act, 2005 (Section 23), Factoring Regulation Act, 2011 (Section 23), Actuaries Act, 2006 (Section 37), Banking Regulation Act, 1949 (Section 36AD(2),and 46), General Insurance Business (Nationalisation) Act, 1972 (Section 30), LIC Act, 1956 (Section 40), Banning of Unregulated Deposit Schemes Act, 2019 (Section 21), Chit funds Act, 1982 ( Section 76), DICGC Act, 1961 (Section 47), Negotiable Instruments Act, 1881 (Section 138) and Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (Section 4 and 5).
The finance ministry also talks about some principles for keeping in mind while deciding on reclassification of criminal offences to compoundable offences. These principles include: decrease the burden on businesses and inspire confidence amongst investors, focus on economic growth, public interest and national security should remain paramount.
Mens rea (malafide/ criminal intent) plays an important role in imposition of criminal liability and, therefore, it is critical to evaluate nature of non-compliance, i.e. fraud as compared to negligence or inadvertent omission and the habitual nature of non-compliance.
Cheque Bounce or Dishonouring (Sect 138 of NI Act)
In the world of lending, banks and financial institutions insisting on taking post-dated cheques (PDCs) from borrowers as a security has been a common norm. These PDCs are often used as weapons by the lenders for arm-twisting the borrowers and also as a deterrent to ensure that borrowers do not default.
Wherever the borrower would explicitly or implicitly give indications of not having the ability to pay, the lender would present these PDCs to the bank; and once these PDCs bounce, the legal team of the lender would jump to action to initiate a case against the borrower under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).
It is one of the most common legal actions being undertaken by lenders against borrowers and, as we are all aware, Section 138 of the NI Act is the most dreaded section with regard to dishonour of cheque, which could lead you to some months of imprisonment to the drawer of the cheque.
The finance ministry has asked stakeholders to submit their comments or suggestions regarding decriminalisation of a particular Act or particular Sections of an Act, along with the rationale for the same. The comments or suggestions can be submitted to the department by email address at [email protected]
within 15 days or by 23 June 2020.
Here is the statement from the ministry and proposed changes in laws...