By decriminalising certain offences, the govt is removing the deterrence that kept these in check even as the move just shifts the litigatory sclerosis in terms of pending cases from the criminal justice system to the civil courts
By Amar Patnaik
The Union finance ministry has proposed decriminalisation in as many as 36 sections across 19 laws, including the Negotiable Instruments Act, SARFAESI Act, LIC Act, PFRDA Act, RBI Act, Banking Regulation Act, and Chit Funds Act, etc. The ministry sees this as an attempt to improve ease of doing business, and unclog the court system and prisons. It is also stated to be a significant step towards fulfilling the government of India’s objective of ‘sabka saath, sabka vikash, sabka vishwaas’.
One of the major laws that have caught the public eye in all this is the decriminalisation of section 138 of the Negotiable Instruments (NI) Act 1881, which deals with dishonour of cheques. Cheques getting returned because of inadequacy of funds in a bank account, and other such causes, is an offence under the NI Act. The law provides for two-year imprisonment and a fine equivalent to twice the amount involved. The objective of this was to promote the efficiency of banking operations and to ensure credibility and trust (vishwaas) in transacting business through cheques, as held in Modi Cements Ltd. vs. Kuchil Kumar Nandi [(1998) 3 SCC 249]. This section incorporates a strict liability on the issuer of the instrument in so far as cheque, a negotiable instrument, is concerned. Generally, in criminal law, ‘mens rea’ is an essential component of a crime, but dishonour of cheque is a criminal offence where there is no need of proving this. Strict liability in this section has proven to be an effective measure to ensure the discharge of debts in transactions, and has, in fact, built an environment of trust in commercial transactions, particularly in the B2C and C2C segments.
The government’s current move to decriminalise it comes as a major blow to banks, creditors and other suppliers as it will substantially affect the recovery of their dues. It would also harm the credit culture in the country which had somewhat improved due to the criminal element in the NI Act. The deterrence that Sec 138 imposed on the cheque-writer would also be compromised as issuing of false cheques would no longer attract criminal liability, and after the proposed amendment comes into action, civil courts would be clogged with cheque bounce cases which would take years to resolve as it happened earlier. The corresponding provisions in developed countries like US, UK, Singapore, etc, is dealt with criminal charges of “deposit account fraud” or “forgery”, though without strict liability jurisprudence.
The government is also seeking to decriminalise contravention of Section 29 of the Sarfaesi Act. This provides for imprisonment and penalty, and gives banks the powers to recover dues from a defaulting borrower by selling properties offered as collateral. Legislations abroad similar to the Sarfaesi law also have similar provisions. However, converting this into a civil offence would force creditors to wait longer to recover their legitimate dues, and thereby put banks under increasing pressure of NPAs, something that the government is currently trying to tackle.
Changes have been proposed to Insurance Act, Pension Fund Regulatory & Development Authority Act (PFRDA), RBI Act, Payment and Settlement Systems Act, NABARD Act, Banning of Unregulated Deposit Schemes Act, Chit Funds Act, among others. Some of these offences include holding a violent demonstration that prevents normal functioning of a bank or undermines the confidence of depositors, which, according to section 36 AD of Banking Regulation Act, attracts a jail term of six months and Rs 1,000-penalty. The law-makers instated criminal overtones to the various sections of these legislations so as to deter individuals fro committing such offences, which may not seem alarming, but could affect adversely the environment of trust (vishwaas).
While the proposal to decriminalise minor offences is touted to provide relief to foreign investors for whom criminal liability for economic offences is a big concern, it will have a negative impact on creditors who will have to wait longer to recover their legitimate dues. Pendency of cases has always haunted India’s judicial system, be it civil or criminal matters. However, the pendency in case of civil matters is worse than that of criminal cases. Hence, the current move would only add to woes of the civil courts, merely shifting the burden from criminal to civil courts. Besides, the context and the business environment that necessitated the change from civil to criminal liability have not changed much. In some legislations like the Banning of Unregulated Deposit Schemes Act and the Chit Funds Act, the impact of such change remains unassessed because the changes were brought in less than even a year ago. Until courts are made more efficient, the purpose of decriminalising offences will be defeated, and will hurt the banking system and the very business environment that the government seeks to improve by bringing in such dilution.
The author is Member, Rajya Sabha