Articles, Criminal Jurisprudence

HARMONIZING THE LEGISLATIVE INTENT AND ALTERNATIVES TO DECRIMINALIZATION: SECTION 138 OF NI ACT, 1881.

 By Gunjan Bahety* and Tanmay Joshi**

INTRODUCTION

The COVID-19 pandemic has affected the Indian economy drastically which has triggered the decline of the employment rate and business losses. To boost the downturn in the business market, lure the domestic and foreign investors, enhance the ease of doing business and to clear the clogged court system the Union Government has strategically proposed, inter alia, to decriminalize 39 minor crimes (under nine-teen legislations) including decriminalizing the dishonor of cheques under Section 138 of the NegotiableInstruments Act, 1881 (herein NI Act). The sole motive of reviewing the decriminalization of Section 138 is to underscore the repercussions of such a move. The fundamental question that arises is whether there is a need to decriminalize Section 138 in order to allure the investors.

SECTION 138: AN INSIGHT

Section 138 of the NI Act specifies imprisonment if a person is guilty of dishonoring cheques as punishment upto two years or fine as far as double the amount mentioned in the bounced cheque or both.   However,  recovery is not merely restricted to criminal courts only. The SC held in Dr. Lakshman v. State of Karnataka that the Drawee can also take recourse by filing a recovery suit in a civil court or by lodging an FIR against the Drawer. All these litigations are unrestrained of each other and can be filed concomitantly. Redundant to say here, the complainants have a wide range over various options to recover their money promptly. By and large, complainants are more inclined towards the expedite resolution of their dispute rather than sending the drawer behind the bars and the compensatory aspect should be prioritized rather than the punitive aspect of the complaint. Even the previous governments pondered about the skyrocketing rise in the complaints filed in various courts under Section 138. The government brought Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, and introduced sections 143, 145, and 147 in the NI Act as it was apprehended that the Sections 138 to 142 were inadequate to deal with the cases relating to the cheque bounces.

DECRIMINALISING SECTION 138 WILL DEFEAT THE LEGISLATIVE INTENT

The primary intent behind Section 138 is to deter the drawer for committing any wrong against the drawee in a commercial transaction.

The Apex Court had pointed out in Damodar S. Prabhu v. Sayed Babalal that the cardinal motive behind the induction of this section is to infuse confidence in the efficacy of banking operations and ensuring trustworthiness in commercial transactions on negotiable instruments. The SC recently reiterated the same and stated the purpose behind the 1988 and subsequent amendments as:

“It was to provide a strong criminal remedy in order to deter the high incidence of dishonor of cheques and ensure compensation to the complainant. Subsequent amendments and the pronouncements of this Court reflect that it was always perceived that these cases would be disposed off speedily so as to preserve the object of criminalization of the act.”

The HC of Bombay has held that criminalization is to prevent abuse of the banking system. The Hon’ble SC in Dalmia Cement (Bharat) Ltd. v. Galaxy Traders and Agencies Ltd. has pointed out the objective of Section 138is to “incorporate a strict liability so far as the cheque, a negotiable instrument, is concerned”.

Issuance of cheque and assurance to pay the same go hand in hand. Decriminalization will create turmoil in the business market as even today a large number of transactions are made through cheques because of the unwillingness of a mass of population to utilize the online payment modes like RTGS/NEFTetc. The scrapping of Section 138 may prove to be a sweetener because it will attract perfidious drawers who would issue a cheque in a fraudulent way which will impede the flow of currency in the market.

THE INEFFECTIVE SHIFT

One of the reasons behind the scrapping of Section 138 is to unclog the court system. The motive of government behind taking away the specific remedy under Section 138 would eventually constrain a bonafide drawee to file a recovery suit in the civil court. Then the litigator has to wait for years to seek the resolution. Shifting of cases from Magistrates’ court to Civil Court will burden the already burdened civil courts. As per the 213th Report of the Law Commission of India, more or less, 20% of the pending cases relate to the dishonoring of cheques. It is an explicit indication of the “magnitude of trade and commerce that is done on the strength of cheques”. It also denotes the applicability and significance of cheques and their dishonor in the Indian Economy. The possible shift would rather lead to a surge in contract enforcement disputes, which would zoom the matters in civil court therewith repositioning the legal battle from “Criminal” to “Civil” defeating the government’s purpose of decriminalization. It would rather be a self-defeating move.

THE MOVE WILL SNATCH JOBS FROM NUMEROUS LAWYERS

The Bar Council of Maharashtra and Goa has criticized the suggestion inviting to decriminalize Section 138 of the NI Act. It wrote a letter to the Finance Ministry registering its protest. The Council had put forth the reservation that “a majority of the lawyers are practicing in this field of the law. The proposed move will certainly affect their livelihood, career and their survival will be put to great stake”.The Co-Chairman of Bar Council of Delhi has also highlighted the effect on the lawyers’ community as the lives of lawyers has been destabilized by the appalling pandemic. In introducing this move, the courts and government are an antithesis to each other.  The courts have decided numerous cases pertinent to dishonoring of cheques resultantly establishing legislative intent of deterrence. The proposed letter by Finance Ministry has termed the offense as “minor” and “Procedural Lapse” which shouldn’t be the case as it would have a plunging effect on the lawyers who are practicing in this field.

ALTERNATIVES TO DECRIMINALIZATION: A JUDICIAL APPROACH

The Courts in various cases have tried to reduce the stringency of Section 138.

The SC in Meters & Instruments v. Kanchan Mehtaelucidated the issue as to how proceedings can be synchronized where the wrongdoer is willing to deposit the cheque amount and held:

“where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 CrPC.”

Further, in the same case, SC focused on the summary disposal of dishonoring of cheques. In this case, the SC stated that the amendments of 2002 were brought to include provisions “for service of summons by Speed Post/Courier, summary trial and making the offence compoundable”. The trials under Chapter XVII of the Act are expected conventionally to be summary trials that have to be tried under the summary trial provisions of the CrPC even though it is fundamentally a civil wrong. The SC has also streamlined the adjudicatory process and allowed compounding of offence even after the conviction was affirmed by all the three subordinate courts. To induce compounding of offences under Section 147 of the NI Act, the court in Damodar S. Prabhu v. Sayed Babalal issued guidelines and the same vary from case to case. Moreover, the SC in Indian Bank Association v. UOIissued guidelines for the expeditious trial of these cases:

  • The trial under Section 138 must be a Summary Trial unless reasons call for Summons Trial, which is exceptional.
  • The evidence of the drawee shall be conducted within three months.
  • Endeavour must be made to dispose the trial within six months from the complaint filing date.
  • Such trials, must be held on a day to day basis unless reasons exist otherwise.

The Hon’ble SC in Makwana Mangaldas Tulsidas v. State of Gujarat suggested proactive steps by banks and the introduction of pre-litigation settlement to reduce the plethora of cases. The Delhi HC in Dayawati v. Yogesh Kumar Gosain, provided that “judicial backing should practice mediation in offence of dishonoring of cheques”.In light of the recent suo moto cognizance taken by the SC, there should be a mechanism to segregate cases under Section 138 which are eligible to be settled outside the courtrooms, prior to the lodging of the complaints in the court of law.

CONCLUSION

Analyzing the various case laws, the intent, and purpose of Section 138, NI Act, and the subsequent amendments, it is concluded that Section 138 should not be decriminalized in light of the legislative intent and other reasons as afore-mentioned. The incumbent government should take such steps that are in concurrence with the true letter and spirit of Section 143 and 147 of the NI Act and the principles laid down by the Apex Court and various High Courts for quicker disposal. These principles include outside court settlement like arbitration and mediation or complying with the time limit of such trials.

The author* and the co-author* are the 4th year students at Maharashtra National Law University, Nagpur.

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