The Finance Ministry has proposed to decriminalise offences described in 39 sections of 19 acts dealing with financial matters and making them compoundable. These include cheque bouncing cases (under the Negotiable Instrument Act) and offences committed by an individual under the Banning of Unregulated Deposit Schemes Act and beside others.

Technically speaking, in the case of criminalisation, the accused has to face imprisonment or fine or both while in case of compounding, the person concerned only has to pay a penalty. Also, with regards to the former, the criminality has to be determined by a court while the penalty can be determined by an adjudicating office who holds quasi-judicial power.

“Given the nature of pendency in all tiers of the courts and the time taken for disputes to be resolved, legislative measures have been considered to help restore trust in doing business. In this pursuit, it is also important that a balance be found so that the mala fide intent is punished while other less serious offences are compounded,” the Ministry said in Statement of Reasons for the proposing decriminalisation of offences.

Accordingly, State governments/ UT Administrations, Civil Society/ Non-Government Organisations (NGOs), academicians, public and private sector organisations, multilateral institutions and members of the public have been urged to send their comments by June 23. The final decision will be taken based on the views and consultation within the Governments.

The statement has suggested five key principles for the reclassification of criminal offences to compoundable offences. These include:

1. Decrease in the burden on businesses and inspire confidence amongst investors

2. Focus on economic growth, public interest

3. National security should remain paramount

Mens rea ( mala fide /criminal intent) plays an important role in the imposition of criminal liability, therefore, it is critical to evaluate nature of non-compliance, i.e, fraud as compared to negligence or inadvertent omission, and the habitual nature of non-compliance. These 19 acts are being implemented by Department of Financial Services.

Key offences for de-criminalisation

One such offence includes a cheque bounce in case of insufficient funds. Section 138 of the Negotiable Instrument Act categorises this is an offence and prescribes imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the cheque, or with both.

Under the Banning of Unregulated Deposit Schemes Act, 2019, six sections – 21(1), 21(2). 21(3), 22, 23 and 24- prescribe a punishment for contravention of provisions dealing with banning of unregulated deposit schemes, fraudulent default in regulated deposit schemes and wrongful inducement in relation to unregulated deposit schemes.

Once the charges have been proved for any of such contraventions or even for repeat offenders, the terms of imprisonment ranges between one and 10 years. The fine is determined to be between Rs 2 lakhs to Rs 50 crore.

Three sections under the Chit Fund Act including those dealing with the violation of its provisions, prescribe jail term up to two years with/without fine up to Rs 5,000.

Upon violating the provisions of the RBI Act, including inviting deposits without authorisation or avoiding the registration, the person concerned will be imprisoned for a period between one and five years and will have to pay a fine of up to Rs 25 lakhs.

Why decriminalisation?

The Ministry intends to create a framework, wherein a penalty levied is sufficient to act as a deterrent. “Actions taken for decriminalisation of minor offences are expected to go a long way in improving ease of doing business and helping unclog the court system and prisons. It would also be a significant step in the Government of India's objective of achieving 'Sabka Saath, Sabka Vikas and Sabka Vishwas',” it said.