Criminal liability of Directors being prosecuted u/s. 138 of the Negotiable Instruments Act

The Parliament of India, in the year 1988, with a view to enhance the acceptability of cheques in settlement of liabilities, by making the drawer criminally liable in case of bouncing of cheques, introduced the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 , by which the dishonourment of cheque was made a punishable offence.

Every law is enacted in the backdrop of the prevailing mischief, it (the law) sought to suppress. These “prevailing mischief” are Reasons for the enactment of the law; and the new law, in the backdrop of these Reasons, thereby, sets up “Objects” to achieve. AND, therefore, even before the Preamble, our Statute books inscribe “Statement of Objects and Reasons” of the enacted law.

I curiously searched for “Objects and Reasons” for the introduction of Sections 138 to 142 (Section 143 to 147 were added in the Year 2002), in our law books in the year 1988. The Bare Act did not had anything.

Then, finally, I found the Object of introducing Sections 138 to 142. It was found in Gazzette of India, dated 05.11.1988, No.49, Ext. Pg. 16. The Object is the same four lines, which are set out in the first Para of this write up. However, there are no Reasons being set out, anywhere, as why, and under what circumstances the Parliament of India thought it “expedient” to enact the said law.

The speech of the Minister of Finance on December 2, 1988 in course of the debate on the Bill in the Lok Sabha states that, Chapter XVII was inserted in the Act, in light of the Report submitted in the year 1975 by the Committee on Banking Laws headed by Dr. Rajamannar.

In the course of the debate some Members had expressed the view that the provisions of Chapter XVII sought to be inserted in the Act, contained very abnormal, rather very dangerous provisions, in that, a kind of civil liability is supposed to be converted into a kind of criminal act which would have far reaching consequences.

Dispelling the apprehensions of those Members, the then Minister pointed out that the proposed amendments were along the same lines as the law prevailing in other countries such as the UK, the USA, Belgium, Portugal, Argentina, etc.

Further, in regard to the object of the provisions, the Minister stated as follows: "In fact, the whole purpose of bringing about this provision is to make the drawing of cheque a regular mode of payment. Unfortunately, today if a cheque is given to a party, they will not consider it a sufficient means of payment, they will insist that unless the cheque is encashed, they will not take that as a kind of payment made."

The Attorney General, on behalf of Union of India, might argue, Parliament is fairly competent to enact laws even in the absence of any Reasons; and laws cannot be declared ultra vires the Constitution merely on the premise that apparently there were no compelling reasons for the Parliament to enact the law; and legally, he may be right also.

However, our Apex Court, while interpreting the words or the provisions of any Statute, and whilst ascertaining the intention of the legislature, have time and again said, the key to the opening of every law is the Reason and the spirit of the law, and the Statute is best interpreted when we know why it was enacted. This “why” includes both, the Reasons and Objects.

Lord Somervell has once stated: In ascertaining the intention of the Legislature, the mischief against which the Statute is directed, and perhaps though to an undefined extent, the surrounding circumstances may be considered.

“A right construction of Act” said Lord Porter, can only be attained if its whole scope and object, together with an analysis of its wording and the circumstances in which it was enacted are taken into consideration. [AIR 1940 PC 82; (1984) 2 SCC 302]

However, whereas the highest Court of our Country have upheld the Constitutionality of the 1988 Amendments, on the premise of lofty objectives it sought to achieve, I would say, the Object of the legislation / or of the provisions therein, howsoever solemn may be, are not the decisive factor in judging the constitutionality of the impugned legislation / provision; but the consequences that naturally and invariably ensues from the practical operation of the impugned legislation / provision, would decide the constitutionality of the impugned legislation / provision [Golakhnath case AIR 1967 SC 1643].

Article 21 exhorts that “No person shall be deprived of his life and personal liberty, except according to the procedure established by law”; however the law, both substantive and procedural, which sought to deprive a person of his life or personal liberty, must be just and fair, and should not be oppressive. [Maneka Gandhi case (1978) 1 SCC 248] In my view, the 138 law, both in substance and in procedure, is oppressive and thus frustrates the mandate of Article 21.

I have in my limited understanding of things, listed some five grounds, on which I say that “Section 138” is a bad law.

A. 138 Law is at the cost of “Public Justice”;

The tribunal incompetent to adjudicate Civil liability;

C. S.141 is against the Public Policy of India;

D. S.141 permits speculative prosecution of directors of the Company;

E. S.141 contemplate “Futile trial” of directors.

(A) 138 Law is at the cost of “Public Justice”

Crime is said to be against the Society, and the Magistrate Courts’ dispenses Public justice as against the Civil Courts which ordinarily adjudicate private disputes between the parties therein. It requires no emphasize to state that Society has a general interest in the due functioning of criminal courts, for, they sought to secure public order and peace in the Society.

However, by this legislative fiction, the Magistrate Courts were now called upon to adjudicate private and more so plentiful and complicated commercial disputes.

Therefore, the Magistrate Courts which were collapsing with over burdened cases of cheating, criminal breach of trust, theft, robbery etc. are now called upon to decide private disputes which are purely contractual in nature.

The Parliament therefore caused to suffer the Public order and peace at the cost of private disputes.

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