Banks have added their voice to the increasing chorus of stakeholders opposing the Finance Ministry’s proposal to decriminalise the offence of cheque return under Section 138 of the Negotiable Instruments (NI) Act, 1881. Banks, under the aegis of the Indian Banks’ Association, have represented to the Finance Ministry that this provision in the NI Act should continue.

Bankers say they resort to legal action under Section 138 (relating to dishonour of cheque) only in cases where borrowers wilfully default on loans. The fear of criminal action, including imprisonment for up to two years or fine, which may be twice the amount of the cheque, or both, acts as a deterrent to such borrowers.

While banks can launch recovery action under ‘The Recovery of Debts Due to Banks and Financial Institutions Act, and 1993’, and ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002’, bankers feel they need to have the Section 138 option also to proceed against recalcitrant borrowers.

Enforcement of contract

The Finance Industry Development Council (FIDC), a representative body of asset and loan financing non-banking finance companies (NBFCs), too has opposed the proposal to do away with Section 138.

Mahesh Thakkar, Director General, FIDC, cautioned that decriminalising the offence under Section 138 of the NI Act would lead to further deterioration in enforcement of contract, especially in terms of honouring acknowledged debt and liability.

He emphasised that small and medium enterprises, apart from NBFCs, will be the worst sufferers and the marketplace will be relegated to cash and carry transactions, with cheques losing their value as a means to secure transactions.

According to reports, the Confederation of All India Traders has urged the government not to decriminalise bouncing of cheques as it will create problems in recovering legitimate business dues and private loans.

In a bid to decriminalise minor offences for improving business sentiment and unclog court processes, the government is seeking to decriminalise various Sections under 12 Statutes, including Section 138 of the NI Act.