A section of the business community and experts have expressed concern over the Union Finance Ministry’s proposal to decriminalise cheque bounce cases under Section 138 of the Negotiable Instruments Act, 1881, and make it a civil offence.
“The Ministry has sought comments, and we have opposed the move. We want the existing system to continue. Cheque have a value only because there was criminal liability,” said N. Jegatheesan, president, The Tamil Nadu Chamber of Commerce and Industry in Madurai. If the cases go to civil court, it will take at least 20 years for a case to get settled and it would not work for the trade and business community, he added.
Mr. Jegatheesan pointed out that some people are suggesting the use of online payment modes like RTGS, Paytm, among others, but that is not feasible for all. For instance, he pointed out that a stockist of fast-moving consumer goods has to go and deliver the goods to the shops and collect only cheques after issuing an invoice.
“Section 138 was introduced as a criminal offence only in 1989 by way of an amendment to the Negotiable Instruments Act, 1881. The intent was crystal clear in making such offences criminal in nature. However, given the current turmoil the economy is facing, the government is rethinking decriminalising this, among certain other offences,” Anant Merathia, a Chennai-based corporate lawyer said.
“Under the pressure to improvise ‘Ease of doing business’ amid the COVID-19 pandemic, the government has to seriously evaluate such reclassification of offences, as many of these may prove to be counter-productive especially for foreign investors to do business in India. Criminal sanction for non-compliance is a colossal aspect to attract investments,”he added.
However, Mr. Merathia pointed out that whether the offence can be seen as a procedural offence in nature would depend on the intent and several other circumstances around the transaction. He said that the proposed changes to remove the provisions of imprisonment eliminate the fear of criminal prosecution, which is the main factor considered for making timely payments of cheques. “While a defaulter whose intent is genuine will anyway find ways to adhere to his obligation and reach out to his creditor, for habitual offenders this will be a huge relief and thereby unfortunately encourage them to continue the same which will disrupt the business ecosystem in India.”
Cheques as bills of exchange have always had a certain sanctity and value amongst businessmen in the course of their transactions, Mr. Merathia said. “If the proposal to decriminalize the offence under Section 138 goes through, then the status of creditors under such a regime will be at a much lower pedestal than the issuer of the cheque, who typically would be the debtor in a large number of transactions in the Indian business and finance ecosystem,” he said.
Mr. Merathia said that banks, financial institutions as well as non-banking finance companies will be severely impacted by such an amendment and will always have to bear in mind the repercussions of their actions when it comes to credit facilities being provided by them.
Trade Creditors (suppliers) too will take a huge blow as accepting post-dated cheques is their primary course of securing payments in due course for supplies made on credit basis, as legal remedies of a civil nature are highly time consuming, he added.
“The criminality factor had made people act responsibly when issuing cheques. While the government has taken steps to speed up the process of settling cheque bounce cases through Lok Adalats, making it into a civil offence goes against the interest of the consumers,” T. Sadagopan, a consumer activist said.