June 10, 2023

Doing Away With Section 138 Of The NI Act Will Be A Retrograde Step

By Sunil Garodia
First publised on 2020-07-23 07:50:56

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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

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The NDA government is concerned about the ease of doing business in India and has taken several steps to better it. Then why is it thinking of a retrograde step like amending Section 138 of the Negotiable Instruments Act to make bouncing of cheques a civil offence? If the government is worried about the more than 38 lakh cases for cheque bouncing that are pending in courts and are clogging the system, it should recognize that this figure would have been much higher if section 138 was not there. Secondly, by making writing a dud cheque a civil offence, would the litigations go away? Since civil cases in India drag on for years, what will happen is that borrowers will issue cheques with abandon (since there will be no criminal liability) and the judicial system will be choked with civil cases due to bounced cheques and lenders will have no easy solution to get their money back. Willful default would increase manifold. It would also impact transactions like bank loans, trade credit and financing of motor vehicles and appliances as lenders would not have the comfort of lodging a criminal case against a defaulter.

The Covid-19 disruption has brought into sharp focus the fact that at the time of writing a post-dated cheque, to pay current liabilities at a mutually-agreed future date, no one can predict future financial stress and consequent bouncing of cheques. Even otherwise, businesses can see a slump in sales and profits or individuals can lose jobs making it difficult for them to honour future commitments and cheques may be dishonoured due to that. But such cases are few. Most cheque bouncing is due either to willful default or borrowers trying to avoid payment by cooking up disputes. The solution would be for the borrowers to inform the lenders about their problems and for the lenders to verify the genuineness and redraw the schedule of payment with reasonable overdue interest and processing charges. But willful default by borrowers in case of post-dated cheques or default in case of current-dated cheques are financial frauds and cannot be condoned under any circumstance. Dishonouring of cheques must remain a criminal offence. The law should be amended to provide quick redress to lenders or the Supreme Court should issue further guidelines to streamline the process in such cases to do away with lengthy procedural barriers and make way for quick disposal of such cases to ease the load on the judicial system. 

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