Rubber Cheques Mustn’t Put Us Behind Iron Bars

Context: It is time to repeal the law which criminalises the issuance of cheques that bounce.

Background

• Legal provision: Under Section 138 of India’s Negotiable Instruments Act, if a cheque bounces due to insufficient funds in the account it’s drawn on, the issuer can be jailed for up to two years, fined, or both.
• Mounting cases: About 3.5 million such cases are pending in courts across India, a pile-up that our top court called “grotesque” and account for 30% of the judiciary’s case-load.
• Attempts towards decriminalisation: In 2020, the Centre proposed to turn them into civil violations that would only attract fines.

Factors in support of the criminalising cheque bounce

• Ensuring the credibility of cheques: Public consultations are reported to have revealed a high level of faith invested in the deterrent effect of criminal prosecution.
• Ensures smooth conduct of commerce: In essence, the penalty is for a kind of contract violation, and broken commitments are indeed a danger to the smooth conduct of commerce.

Factors in support of decriminalisation cheque bounce

• Upholding principle over practical concerns: Proportionality principle is compromised; In essence, the penalty is for a kind of contract violation, and
• No escape clauses present: There was no scope for escape clauses, even for genuine cases like pandemic related broke downs.
  • Ironically, for a pecuniary promise broken widely without warning, in 2016, our central bank’s “promise to pay” printed on ?500 and ?1,000 currency notes was nullified overnight.
• Growing online transfers: Financial sphere is being defined by zero-time lags and data gaps. E.g. ‘Smart money’ issued by Central Bank can be programmed to meet payment schedules.
• Lighter mechanisms have proved effective: Enriched information available in databases, for example, has made debtors value their credit scores and egged them to keep up loan repayments.

Way forward

• Judiciously addressing bailouts: Those who have no money left shall be bailed out on a strict set of terms and conditions that do not create a perverse incentive of moral hazard or violate the broader social contract.