On 8-6-2020, the Ministry of Finance sought public comments with respect to a proposal to decriminalise several minor offences to decrease the burden of potential criminal liability on businesses, reduce the pendency of cases and enhance the ease of doing business in India[1]. One of the offences sought to be decriminalised was that of cheque dishonouring under Section 138 of the Negotiable Instruments Act, 1881 (“the Act”). The proposal immediately attracted widespread opposition from both within the legal fraternity, and without. We, however, believe that the decriminalisation of cheque dishonouring would not have the overwhelmingly adverse impact that most detractors of the proposal feel it will. Instead, we see the decriminalisation of the offence as leading to a simplification and consolidation of the law relating to debt recovery.
If a cheque, issued by a drawer pursuant to the discharge of a liability to the payee, is returned by the drawee bank due to the drawer not having sufficient credit/funds in his bank account, the drawer is deemed to have committed the offence of dishonouring a cheque. This imposition of criminal liability, as per Section 138 of the Act, on a person issuing bad cheques is not an age-old concept. In fact, prior to the introduction of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, the only remedy available to the payee of a dishonoured cheque lay in civil law. It is only after 1988 that the law of the land, seeking “to enhance the acceptability of cheques in settlement of liabilities.…”[2], brought drawers of bounced cheques under the purview of criminal law, while leaving the jurisdiction of civil courts, to also give remedy to the payees of such cheques, unaffected. Though an act is usually criminalised for the purpose of punishing the offender, rather than compensating the victim; in the case of cheque dishonouring, practical experience and the scheme of the Act shows us that the compensatory aspect of the crime takes precedence over the punitive. This predominantly compensatory object of the provisions of Chapter 17 of the Act is evidenced by the fine imposable by the court being linked to the cheque amount[3], the compoundability of the offence[4], cognizance of the offence only being taken on written complaint by the payee[5], and the summary trial procedure applicable to Section 138 proceedings[6].
The scheme of the law governing the offence of cheque dishonour seems to encourage the parties to settle the dispute by having the offender pay the cheque amount and avoid penal confinement. The Supreme Court has even devised a scheme for the graded increase in fines levied to encourage early compounding of the offence[7]. Even if the accused refuses to compromise, the Court can impose a fine up to double the cheque amount and apply it to compensate the payees of the bad cheque[8]. This primary objective of giving compensatory relief to the payee of the cheque is essentially civil in nature. Section 138 of the Act, thus, seeks to provide a civil remedy through the criminal justice apparatus. The Supreme Court has on several instances recognised that cheque dishonour cases “are really civil cases masquerading as criminal cases”.[9] The pre-eminent role of compensatory, rather than punitive considerations, while disposing of cases of cheque dishonour is evident from the Supreme Court’s decision in Meters and Instruments (P) Ltd. v. Kanchan Mehta[10], wherein the Court allowed the discharging of the accused even if the cases were not compounded with the consent of both parties; so long as the criminal court found that the complainant was duly compensated[11]. In fact, the question of decriminalising cheque dishonouring was first hinted at by the Supreme Court in an order passed by it in March of 2020.[12] When we look at the basic end that the law relating to cheque dishonour aims to serve, as well as the operation of the law in practice, it is clear that the decriminalisation of the offence would not drastically alter the substantive rights of the payee of a dishonoured cheque.
Under present law, upon dishonour of a cheque, the payee of the cheque can approach both civil and criminal fora. The payee can move civil courts by means of a suit for recovery linked to the liability sought to be discharged by the cheque. He or she can also approach criminal courts writing a complaint to a Magistrate of an offence under Section 138 of the Act. Though the liberty accorded to the payee of a dishonoured cheque to move multiple fora for remedy would, prima facie, appear to best serve the ends of justice, it does pose some problems, namely—
(i) If the payee proceeds against the accused both in criminal and civil courts, the cost incurred by both parties in contesting such simultaneous proceedings tends to create an undue burden. This would be especially true for the defendant who would be forced to contest two separate proceedings in two different fora pertaining to the alleged dishonour of a single cheque. Moreover, this would lead to a multiplicity of proceedings in relation to essentially the same subject-matter, seeking essentially the same relief. The Law Commission in its 213th Report, noted that approximately 38 lakhs Section 138 cases were pending in criminal courts nationwide[13]; while a more recent Supreme Court order put the figure closer to 35 lakhs, constituting more than 15% of criminal cases pending in District Courts.[14] Decriminalising the offence of cheque dishonouring would, at the very least, remove from the national pending cases roster those criminal cases where a corresponding civil proceeding has also been instituted, leaving the civil court to adjudicate the dispute.
(ii) If the complainant chooses to move only the criminal courts via Section 138 of the Act, the proceedings may not be concluded as expeditiously as required by the Act[15], and the civil right of action may be lost in the meantime due to the limitation period expiring. This problem came to the fore in R. Vijayan v. Baby[16], where the criminal case against the accused resulted in the Magistrate levying an inadequate amount of fine, while the limitation period for the civil action expired during the pendency of the appeal from the Magistrate’s judgment. This left the complainant with no means of recovering the cheque amount. The following obiter dicta of the Supreme Court encapsulates the problem—
- 19. … In same type of cheque dishonour cases, after convicting the accused, if some courts grant compensation and if some other courts do not grant compensation, the inconsistency, though perfectly acceptable in the eye of the law, will give rise to certain amount of uncertainty in the minds of litigants about the functioning of courts. Citizens will not be able to arrange or regulate their affairs in a proper manner as they will not know whether they should simultaneously file a civil suit or not. The problem is aggravated having regard to the fact that in spite of Section 143(3) of the Act requiring the complaints in regard to cheque dishonour cases under Section 138 of the Act to be concluded within six months from the date of the filing of the complaint, such cases seldom reach finality before three or four years let alone six months. These cases give rise to complications where civil suits have not been filed within three years on account of the pendency of the criminal cases.[17]
Decriminalisation of the offence would do away with such exigencies, leaving the payee of a dishonoured cheque with recourse solely in civil courts. It must also be noted here that, civil courts have one advantage over criminal courts when it comes to affording relief to the payee – claiming of interest. While the scheme of Chapter 17 of the Act allows the criminal court to levy fines up to double the cheque amount and the general provisions of the Code of Criminal Procedure, 1973 also allows the criminal courts to award compensation if no such fine is levied[18], the awarding of such fines/compensation equivalent to the cheque amount together with reasonable interest accrued thereon is discretionary. The need for uniformity in the fines levied, which should include the cheque amount with 9% per annum interest thereon, was noted by the Supreme Court[19]. Civil courts, on the other hand, have a well-developed jurisprudence surrounding Section 34 of the Code of Civil Procedure, 1908, which allows for interest pre-institution of the suit, pendente lite and post-decree.
Apart from resolving the issues associated with giving the payee of a dishonoured cheque rights of action in multiple fora, decriminalising the offence leaves intact the rights of the parties to seek redressal of their disputes pertaining to such cheques by means of alternative dispute resolution processes. Under the current law, cases with regard to compoundable offences, such as the offence of cheque dishonouring, are capable of being referred to alternative dispute resolution mechanisms like arbitration, mediation, conciliation and Lok Adalats[20] for settlement, akin to references permitted under Section 89 of the Code of Civil Procedure, 1908[21]. Moreover, such alternative dispute resolution processes are usually utilised by parties to settle disputes pre-litigation, hence the rights of the parties in relation to such processes would not be affected by decriminalisation of the offence. Indeed, even without decriminalisation, alternative dispute resolution has been generally acknowledged as the key to reducing the huge backlog of cases arising out of minor wrongs such as cheque dishonouring[22].
It must be noted here that, though the decriminalisation of cheque dishonouring can make the law relating to the same more consistent, uniform and just to all litigants, it does not, in and of itself, mean that the disputes will be adjudicated more expeditiously. In fact, most critics of the decriminalisation proposal have pointed out that under the present legal framework, the remedy available to the payee of a dishonoured cheque in civil courts is by means of a general suit for recovery of money. Unlike in criminal law, there are currently no special provisions in civil law in relation to dishonoured cheque actions. However, it must be mentioned that, despite special provisions being available to payees of dishonoured cheques in criminal courts, such matters are hardly ever disposed of expeditiously, let alone within the statutory time-limit of 6 months.[23] The root cause of this problem does not relate to nature of the wrong, rather, it stems from the large-scale judicial vacancy in lower courts generally. With cheque dishonouring cases being destined to be tried in lower courts, and the large number of such cases filed, the pendency statistics of cheque dishonouring cases will continue to be aggravated for want of a sufficient number of Judges to hear them – whether civil or criminal. It has been reported that every 10 lakh Indians have access to just 19 Judges.[24] This apart, the Supreme Court has noted that, as on 22-10-2018, there were 5133 judicial vacancies out of a total of 22,036 such posts.[25] Regardless of whether cheque dishonouring is decriminalised, if the problem of judicial vacancies in the lower courts is not addressed, a mechanism for more expeditious disposal of such cases will remain elusive.
Apart from increasing the number of Judges in the lower courts, in order to ensure truly efficacious remedy to payees of dishonoured cheques, procedural provisions equivalent to those contained in Chapter 17 of the Act must be incorporated into civil law. Resultantly, suits for recovery of money arising out of dishonoured cheques must be made compulsorily summarily triable under Order 37 of the Code of Civil Procedure, 1908, with statutory time-limits for disposal of such suit and appeals therefrom. Parties to such proceedings should also be made to undergo mandatory pre-institution mediation to encourage early settling of the matter without going into litigation. Special Courts or Tribunals may also be designated the fora of recourse for all civil proceedings in relation to cheque dishonouring. If such changes to the civil law governing cheque dishonouring are effected, decriminalising the wrong would reduce the number of pending cases in criminal courts, and create one consolidated and equitable legal framework for dishonoured cheque related disputes. These changes would have the effect of bringing essentially civil wrongs out of the jurisdiction of criminal courts and bring them into the fold of the civil law system which would provide equally, if not more efficacious relief to victims of cheque dishonouring.
* Principal Associate, Khaitan and Co., e-mail: anunoy.basu@khaitanco.com. [Views are personal only and not of the Firm.]
** 5th-year student, Department of Law, University of Calcutta, e-mail:shounakmukherjee96@gmail.com.
[1] Notice Seeking Public Comment dated 8-6-2020, Department of Financial Services, Ministry of Finance, Government of India, <https://financialservices.gov.in/sites/default/files/Decriminalization%20-%20Public%20Comments.pdf>.
[2] Statement of Objects and Reasons of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 <http://www.scconline.com/DocumentLink/It14gm48>.
[3] S. 138 of the Negotiable Instruments Act, 1881.
[4] S. 147 of the Negotiable Instruments Act, 1881.
[5] S. 142(1)(a) of the Negotiable Instruments Act, 1881.
[6] S. 143 of the Negotiable Instruments Act, 1881.
[7] Damodar S. Prabhu v. Sayed Babalal H., (2010) 5 SCC 663.
[8] S. 357(1)(b) of the Code of Criminal Procedure, 1973
[9] R. Vijayan v. Baby, (2012) 1 SCC 260, para 16; see also, Rangappa v. Sri Mohan, (2010) 11 SCC 441, para 14; Meters and Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560, para 18.
[11] Id., at para 18.
[12] Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695, para 18.
[13] Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 2.18.
[14] Makwana Mangaldas Tulsidas v. State of Gujarat, (2020) 4 SCC 695, para 4.
[15] S. 143(3) of the Negotiable Instruments Act, 1881.
[18] S. 357(3) of the Code of Criminal Procedure, 1973.
[19] R. Vijayan v. Baby, (2012) 1 SCC 260, para 18.
[20] S. 20 of the Legal Services Authorities Act, 1987; see K.N. Govindan Kutty Menon v. C.D. Shaji, (2012) 2 SCC 51.
[21] Dayawati v. Yogesh Kumar Gosain, 2017 SCC OnLine Del 11032.
[22] Law Commission of India, Report No. 213 on Fast Track Magisterial Courts for Dishonoured Cheque Cases, Para 5.5.
[23] S. 143(3) of the Negotiable Instruments Act, 1881.
[24] <https://thewire.in/law/india-has-19-judges-per-10-lakh-people-law-ministry-data>.
[25] Filling up of Vacancies, In re, 2018 SCC OnLine SC 3648 para 2
The cheque as a negotiable instrument has outlived its utility. Now, business can very easily afford to carry out their money transfer through electronic mode quickly, efficiently and economically. Thus it is high time that the government should think of removing the cheque facility for business transactions and restrict its use for for savings bank accounts of small value, say one lakh rupees st the maximum. Most of the cases of cheque fidhonour cases that reach the court are only business cases where the intention is not honest.
The Very Act was never ever meant to the effect presently get implemented.
Very purpose was to curb unprecedented trend of cheating and abuse of process of law widely used in (mainly) business community.- wherein innocent person was victimized.
In present form of implementations, it lost the very intention and purpose.
It is more advisable to SCRP the entire Act to reschedule so to suffice the very purpose of Criminality – which prevails.
Merely shifting from Criminal to Civil – not only increased the burden on Judiciary but may make mockery of Law.
Absolutely! Its criminality has also been substantially decreased by making it a compoundable offense, which shows the intention of legislature towards reducing the backlog of such case.