FinMin’s Proposal to Decriminalize ‘Dishonour of Cheque’ Is the Last Thing We Need

Jun 13, 2020

The Finance Minister Mrs Nirmala Sitharaman while announcing the fifth and final tranche of the stimulus package for the economy hit by the coronavirus pandemic had said that violations involving minor technical and procedural defaults would be ‘decriminalised’ as an effort to further ease doing business in the country. It is believed that this would go a long way in improving the ease of doing business and would help to unclog the court system and prisons. Hence following up on its promise, it is inviting comments from stakeholders by June 23 on 19 legislations that interalia including the Negotiable Instruments Act (Dishonour of Cheques or as commonly known as Cheque Bounce).

Overdoing anything can be dangerous!!

This is a perfect example. The Finance Ministry in its zeal to improve business sentiments has overdone it or perhaps overstretched the concept here. The proposal of decriminalization of dishonour of cheques will yield the exact opposite result – loss of trust and confidence in business. It might end up killing the sanctity and credibility of perhaps the most important banking instrument – the “cheque”.

Let us understand the gravity of the proposal by taking an example:

  • Mr A is a small businessman and receives a big order from a big businessman Mr B.
  • Though Mr A does not have the wherewithal to meet the big order, he somehow takes big business risks and arranges the resources to make the timely supply.
  • Mr B accepts the order and avails a credit period of 30 days and issues a post-dated cheque to Mr A. On the due date, the cheque bounces and Mr B fails to make the payment even after 15 days of notice.
  • Mr A files the case u/s 138, somehow arranges for the court fee and advocates fees and attends courts from one hearing to another. His only hope is that being a criminal offence, Mr B will ultimately make the payment and with the recent amendment of 2018, he might get a token 20% in the interim.
  • Now Mr B comes to know of the brilliant idea of the Finance Ministry that the cheque bouncing offence might not be treated as a ‘criminal offence’, he would have all the incentive in the world to issue more such cheques which he has no intention of paying and drag the matters in court for years.
  • Mr A learns from this bitter experience that nearly makes him bankrupt and decides that he would never sell any goods on credit. He would rather let go of the business opportunity that would require him to sell goods to a new party on credit.

The criminal provisions in the Negotiable Instrument Act, of 1881 relating to dishonour of cheques were introduced with the aim of inculcating confidence in the efficacy of banking operations and giving credibility to negotiable instruments employed in business transactions. If a party issues a cheque as a mode of deferred payment and the payee of the cheque accepts the same on the faith that he will get his payment on the due date, then he should not suffer on account of non-payment.

The government should realize that settlement of disputes in courts is the last resort for any businessmen. He only resorts to filing a court case when either he feels defrauded or loses all hopes of an amicable resolution and foresees no future business with the party. The appalling state of the judicial system is no secret. In normal circumstances, it takes around 15-24 months on average for a ruling to be made in section 138 cases even when the facts of the case are clear and established.

If the government wishes to improve business sentiments and confidence, it should bring even stricter provisions for upholding the sanctity of the instruments of cheques. It should introduce suitable provisions that would make businesses honour their commitments. This will enhance business trust and confidence and enable people to do more business. The perceived credit risk will be lower. A person should be afraid of the legal provisions and should not issue a cheque unless he has every intention of honouring it. If a businessman receives a cheque in his hand, he should feel extremely confident that it would be honoured in most likely scenarios. The proposal to decriminalize cheque bouncing might reduce the instrument of “cheque” to a mere joke.

“Uncertainty” is the biggest threat to business. The present COVID-19 pandemic crisis has brought a lot of uncertainty to the world. The last thing that India needs is a “lack of trust and confidence” in a basic banking instrument like a “cheque”. This might have a catastrophic effect.

Personally, I believe that the intentions of the Government are noble. They want to pass on assurances to the business community by decriminalizing certain minor offences. However, decriminalizing cheque bounce offences is not at all a good idea. I hope better sense will prevail.

Reference link: