Clipped from: https://www.thehindubusinessline.com
If the intention is to reduce the piling up of cases in court, a better way would be to restrict the usage of cheques and encourage digital payments
It is reported that the Finance Ministry has proposed to decriminalise offences described in 39 Sections of 19 Acts dealing with financial matters and make them compoundable. These include cheque-bouncing cases under the Negotiable Instruments Act, 1881.
While explaining the reasons for the proposal, it is stated that given the nature of pendency in all tiers of the courts and the time taken for disputes to be resolved, legislative measures have been considered to help restore trust in doing business and in this pursuit, it is also important that a balance be found so that mala fide intent is punished while other less serious offences are compounded.
It is unfortunate that instead of strengthening the existing framework of timely payment mechanism, the government is going backwards and, in the process, helping culprits who issue cheque knowing fully well it will bounce.
Until 1989, failure to discharge the liability of a payment through cheque was only a civil liability and failure to discharge was a civil wrong. By amending Section 138 of Negotiable Instruments Act, the civil liability was converted as a criminal liability.
The objective of introducing Section 138 was ‘to encourage the culture of use of cheques and to enhance the credibility of the instrument’. To enhance the acceptability of cheques in settlement of liabilities, the Section makes the drawer liable for penalties in case of bouncing of cheques due to insufficient arrangements made by the drawer but, at the same time, it has adequate safeguards to prevent harassment of honest drawers. Prior to this, the drawer of a dishonoured cheque could only be criminally prosecuted under Section 420 of the Indian Penal Code. Section of 138 of NI Act is better instrument than prosecution under IPC for the aggrieved.
There are some distinctive advantages in the remedy available through Section 138 of NI Act. Under criminal law, for a crime of dishonour of cheque to be made out, there is need for the prosecution to first establish dishonest intention on the part of the drawer from the inception of the instrument. Just because the cheque is dishonoured, the crime of cheating is not established.
Failure on the part of the prosecution to prove the intention to cheat will make the court to hold that the matter is civil in nature. Under criminal law, dishonest intention has to be proved beyond reasonable doubt.
Section138 does away with this formalistic rigour of criminal law. If a cheque is dishonoured for insufficient fund, the offence under Section 138 of the NI Act is constituted, notwithstanding the intention of the person issuing the cheque.
Indian courts are riddled with the colossal problem of pending cases, with over 35 lakh cheque-bounce cases pending in district courts. But will it be proper to change the Act just because there is difficulty in administering it?
Section 138 with safeguards
Introduction of Section 138 of the NI Act was with a good intention and this has enhanced the credibility of the usage of cheques. Casual way of issuing cheque has been arrested to a large extent.
The existing legal provisions contain sufficient safeguards like issuing of notice of dishonour by the beneficiary within 30 days, 15 days time for the drawer to make the payment, and one month time for the beneficiary to file complaint.
Even in advanced countries like the US there are different laws in each state that outline regulations for bounced checks, both for civil and criminal penalties. Under criminal penalties, one can be prosecuted and even arrested for writing a bad cheque.
If the intention to decriminalise is to avoid the huge number of cases in the courts, there is a better way. Instead of making return of cheque for insufficient funds as a compoundable offence, it is better to restrict the usage of cheques itself.
When digital payments like NEFT, IMPS and RTGS are available 24×7, the system of issuing cheques can be restricted for smaller payments. By suitable amendment to Negotiable Instruments Act, the amount that can be transacted through cheque can be restricted.
It is also possible to make the cheque transactions costly by levying appropriate charges. This will automatically prompt people to migrate to the digital payment system.
Our banks are incurring huge costs for providing cheque facility to the customers and also for clearing huge volume of cheques through the cheque truncation system. As per an RBI report, use of paper-based instruments (like cheques, drafts, and the like) accounts for nearly 60 per cent of the volume of total non-cash transactions in the country. In value terms, the share is currently around 11 per cent. Restrictions on cheque usage can make help both banks and the RBI save on costs.
When 20 of the 27 EU member-states have effectively eliminated cheques, where usage is down to two cheques per capita per annum or less, with high mobile phone and internet penetration, it should be possible for India to move to paperless bank transactions. Yes, it is time for us to bury the cheque system.
The writer is a retired banker