In an attempt to improve business sentiment in India, Centre has started a process for decriminalising several acts that are currently listed as economic offences punishable with a jail term, fine, or both. The Central Govt. has sought opinions from stakeholders like State Govt & public on proposals to amend 19 acts of Parliament which if legislated may, for example, make bouncing of bank cheque a non-criminal act.
The move will speed up the economic revival process & encourage businesses, the Govt said. There are growing concerns in the Govt that due to the Coronavirus pandemic & economic distress there might be a surge in financial failures, which under current rules can get treated as frauds. These proposals include amending the Negotiable Instrument Act which covers the dishonouring of a cheque or in simple terms cheque bouncing.
On Monday, the Finance Ministry issued a “Statement of Reasons” for proposing a change even to the offences (as per current law) committed by any individual under various sections of Banning of Unregulated Deposit Schemes Act & beside others. The acts which are set to witness changes if there is a consensus include the RBI Act, NABARD Act, SARFAESI Act, Insurance Act, PFRDA Act, & Payments & Settlements Systems Act.
To get the opinion of all stakeholders, Finance Ministry’s Department of Financial Services, or Banking Department, has asked State Govts, Union Territory administrations, civil society, Non-Govt organisations, academicians, public & private sector organisations, multilateral institutions, & members of the public to send their views & comments by June 23. Centre will study the opinions & finalise the rules.
According to the current law, anyone accused of issuing a cheque that’s dishonoured or runs an unregulated deposit scheme that goes insolvent has to face imprisonment or fine or both. The Govt proposes to decriminalise such offences.
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The Govt proposes to bring in a method of compounding in which an accused person would have to pay a penalty & matter will end there. The suggestion is that the element of criminality needs to be decided by a Court while a compounding penalty can be determined by an adjudicating office with quasi-judicial powers.
“Decriminalisation of minor offences is one of the thrust areas of the Government. The risk of imprisonment for actions or omissions that aren’t necessarily fraudulent or the outcome of mala fide intent is a big hurdle in attracting investments. The ensuing uncertainty in legal processes & the time taken for resolution in the courts hurt ease of doing business,” said the Ministry of Finance.
“Criminal penalties, including imprisonment for minor offences act as deterrents, & this is perceived as one of the major reasons impacting business sentiment & hindering investments, both from domestic & foreign investors. This becomes even more pertinent in the post-COVID-19 response strategy to help revive economic growth & improve the justice system,” said a senior Finance Ministry official, while speaking to the news agency.
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The Govt assessment is that such offences entail a long legal journey choking up various tiers of the judicial system with little financial gains. However, the Govt. does not want to make things easier for those with mala fide intent. This is why the finance ministry proposal pushes for a balance under which mala fide intent may face punishment & less serious offences would be merely compounded. The legal framework proposed by the Govt plans to create enough penalties which may act as a deterrent.
The Finance Ministry has proposed 5 main principles for reclassification of criminal offences to compoundable offences, which include decrease in the burden on businesses, inspire confidence among investors, & evaluate nature of non-compliance, i.e. fraud as compared to negligence or inadvertent omission, & the habitual nature of non-compliance before fixing criminal liability.
Key offences for decriminalisation include cheque bounce in case of insufficient funds. The Section 138 of Negotiable Instrument Act identifies this is an offence & prescribes imprisonment for a term which may be extended to two years, or fine which may extend to twice the amount of the cheque, or both.
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Under the Banning of Unregulated Deposit Schemes Act, 2019, six sections – 21(1), 21(2), 21(3), 22, 23 & 24 – prescribe punishment for contravention of provisions dealing with Banning of Unregulated Deposit Schemes, Fraudulent default in Regulated Deposit Schemes & Wrongful inducement in relation to Unregulated Deposit Schemes.
Once any of the charges under these provisions are proved, terms of imprisonment ranges between 1-10 years & fine between Rs 2 lakh to Rs 50 crore.
Under the Chit Fund Act, 3 sections list the violations & prescribe a jail term up to 2 years with or without fine up to Rs 5,000.
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Violation of sections of RBI Act in seeking deposits without authorisation or avoiding registration invites an imprisonment between 1-5 years with fine as high as Rs 25 lakh.
Through the statement of reasons the government is looking to create a legal matrix where a penalty is the deterrent. In other terms, incarceration may get rare & penalty common.
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