In about 19 legislations, a host of minor offenses including those relating to cheque bounce and repayment of loans set to be decriminalized by the Finance Ministry in order to help businesses tide over the crisis caused due to the outbreak of this pandemic. The legislations include LIC Act 1956, PFRDA Act 1999, RBI Act 1934, SARFAESI Act (repayment of bank loans) 2002, Negotiable Instruments Act (cheque bounce) 1881, Banking Regulation Act, 1949 and Chit Funds Act 1982.
The Finance Ministry has invited comments of various stakeholders over these legislations by 23rd June 2020 and has further clarified that the decision of decriminalizing various minor offenses is undertaken to improve ease of doing business in the long run and in order to help unclog the court system and prisons. This decision would further be a significant step to take under the objective of the Government of India’s ‘Sabka Saath, Sabka Vikas, and Sabka Vishwas.’ The feedback of various stakeholders will be very crucial since the department on the basis of their feedback would take a call as to whether a particular section should remain a criminal offense or that it should be suitably modified to decriminalize to improve the ease and comfort of doing business.
Various other legislations were included in the list of documents for consultation for suitable amendments to decriminalize minor offenses such as the Insurance Act 1938, Payment and Settlements Systems Act 2007, NABARD Act 1981, State Financial Corporations Act 1951, Credit Information Companies (Regulation) Act 2005 and Factoring Regulation Act 2011. While announcing the Rs 20.97 lakh crore stimulus package, the Finance Minister, Nirmala Sitharaman had stated that violations involving minor technical and procedural defaults would be decriminalized as an effort to further ease the way of doing business in the country. Listing the module of decriminalization of minor offenses under the Companies Act, the Department of Financial Services had come to a decision to list various minor offenses under numerous legislations and had concluded that the said decriminalization of minor offenses, would become one of the thrust areas of the government.
Section 138 of the Negotiable Instruments Act, 1881 which deals with cheque bounce due to insufficient amount in the account states that a person is deemed to have committed an offense and shall, without prejudice to any other provisions of the act, be punished with 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. Similarly taking the instance of Section 40 of the LIC Act of 1956 states that an act of a person wilfully withholds or fails to deliver to LIC as required by Section 13, any property or any books, documents or other papers which may be in his possession or unlawfully retains possession of any property of an insurer punishable with imprisonment which may extend to one year, or with fine of Rs 1,000 or both. Further, two Sections 36 AD (2) and 46 of the Banking Regulation Act, 1949 and Sections 58B (1), 58B (4A), SECTION 58B (5), and Section 58B (5A) of the RBI Act, 1934 have been proposed to be decriminalized.
In order to administer the Acts and develop a consensus, the Department of Financial Services has invited the comments of state governments, UT administrations, public and private sector organizations, and members of the public. Stating that this decriminalization would provide relief to foreign investors for whom criminal liability for economic offenses is a huge concern, Pratibha Jain, Founding partner at Nishith Desai Associates has added that “lack of clarity on the jurisdiction of SFIO, ED, and CBI often resulting in multiple regulators and proceedings for the same offense, causing significant issue for defendants.” Contending on the issue further she elucidated that India regulators especially SFIO and ED unlike some of the other developed jurisdictions do not have the processes to allow monetary penalties in lieu of imprisonment, especially for offenses that are technical in nature.
Veena Sivaramakrishnan, partner at Shardul Amarchand Mangaldas & Co stated that “from a lenders perspective, criminal action against the key managerial personnel of the borrower has always acted as a crucial tool in bringing the borrowers to the negotiation table, especially for restructuring and post-default.” She also shared her views that this decriminalization of such acts would indeed take away the deterrent that this threat played, irrespective of whether the threat was actually acted upon or not.