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June 10, 2020

Centre Proposes Decriminalization of Cheque dishonour Sec 138 of NI, SARFAESI, PFRDA, Actuaries, Insurance, Deposit Scheme & 15 Others

by Mahesh Mara in Compliance Law

Centre Proposes Decriminalization of Cheque dishonour Sec 138 of NI, SARFAESI, PFRDA, Actuaries, Insurance, Deposit Scheme & 15 Others

The Ministry of Finance has proposed decriminalization of several economic offences, including the offence of dishonor of cheque under section 138 of the negotiable instruments act, and has invited comments from all stakeholders on this.

The Ministry has said that this move is with the aim of “improving business sentiment and unclogging court processes” in the wake of economic crisis caused due to lockdown.

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 malafide intent is a big hurdle in attracting investments. The ensuing uncertainty in legal processes and the time taken for resolution in the courts hurts ease of doing business. Criminal penalties including imprisonment for minor offences act as deterrents, and this is perceived as one of the major reasons impacting business sentiment and hindering investments both from domestic and foreign investors. This becomes even more pertinent in the post COVID19 response strategy to help revive the economic growth and improve the justice system.

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 malafide intent is punished while other less serious offences are compounded. Accordingly, a framework is required such that 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 ‘SabkaSaath, Sabka Vikas and Sabka Vishwas’.

Last month, Union Finance Minister, Nirmala Sitharaman, had announced the decision to decriminalize minor economic offences as a part of “Atmanirbhar economic package”

Further the statement said

“Criminalizing procedural lapses and minor non-compliances increases burden on businesses and it is essential that one should re-look at provisions which are merely procedural in nature and do not impact national security or public interest at large. The following principles should be kept in mind when deciding on reclassification of criminal offences to compoundable offences:

  • Decrease the burden on businesses and inspire confidence amongst investors;
  • Focus on economic growth, public interest and national security should remain paramount;
  • Mens rea (Malifide/ criminal intent) plays an important role in 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”.

The following offences are proposed to be decriminalized

1. Section 12, Insurance Act, 1938

Section 12 (read with Section 147 of the Companies Act, 2013):
The balance sheet, profit and loss account, revenue account and profit and loss appropriation account of every insurer, in respect of all insurance business transacted by him, shall, unless they are subject to audit under the Companies Act, 2013 (18 of 2013), be audited annually by an auditor, and the auditor shall in the audit of all such accounts have the powers of, exercise the functions vested in, and discharge the duties and be subject to the liabilities and penalties imposed on, auditors of companies by section 147 of the Companies Act, 2013.
As per Section 147 of the Companies Act, 2013, the company shall be punishable with fine which shall not be less than INR 25,000/- (Indian Rupees twenty-five thousand only) but which may extend to INR5,00,000/- (Indian Rupees five lakh only) and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 (one) year or with fine which shall not be less than INR10,000 (Indian Rupees ten thousand rupees only) but which may extend to INR 1,00,000 (Indian Rupees one lakh rupees only), or with both.

Section 103:
If a person carries on the business of insurance without obtaining a certificate of registration under section 3, he shall be liable to a penalty not exceeding rupees twenty-five crores and with imprisonment which may extend to ten years.

2. Section 29, SARFAESI Act, 2002

If any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules made thereunder, he shall be punishable with imprisonment for a term which may extend to 1 (one) year, or with fine, or with both.

3. Section 16(7), 32(1), PFRDA Act 2013

Section 16 (7):
If any person fails without reasonable cause or refuses—
(a) to produce to an Investigating Authority or any person authorised by him in this behalf any book, register, other document or record which it is his duty under subsection (2) or sub-section (3) to furnish; or
(b) to furnish any information which it is his duty under subsection (3) to furnish; or
(c) to appear before the Investigating Authority personally when required to do so under sub-section (5) or to answer any question which is put to him by the Investigating Authority in pursuance of that sub-section; or
(d) to sign the notes of any examination referred to in sub-section (6),
-he shall be punishable with imprisonment for a term which may extend to 1 (one) year, or with fine, which may extend to INR 25 Crores (Indian Rupee twenty-five crore only), or with both, and also with a further fine which may extend to INR, 10,00,000/- (Indian Rupees ten lakh only) for every day after the first day during which the failure or refusal continues.

Section 32 (1):
Without prejudice to any award of penalty by the member under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to 10 (ten) years, or with fine, which may extend to INR 25 Crores (Indian Rupees twenty-five crore only) or with both.

4. Section 58B, RBI Act, 2007

Whoever in any application, declaration, return, statement, information or particulars made, required or furnished by or under or for the purposes of any provisions of this Act, or any order, regulation or direction made or given thereunder or in any prospectus or advertisement issued for or in connection with the invitation by any person, of deposits of money from the public willfully makes a statement which is false in any material particular knowing it to be false or willfully omits to make a material statement shall be punishable with imprisonment for a term which may extend to 3 (three) years and shall also be liable to fine.

5. Section 26(1), 26(4), Payment and Settlement Systems Act, 2007

Section 26 (1):
Imprisonment of a minimum of 1 month extendable to 10 years or fine up to INR 1 cr. or both Additional fine of INR 1 lakh per day once the contravention or failure to comply continues.

Section 26 (4):
Imprisonment of up to 6 months or fine which may extend to INR 5 lakh or an amount equal to twice the amount of damages incurred, which is higher or both (imprisonment and fine).

6. Section 56(1), NABARD Act, 1981

Section 56 (1):
Whoever in any return, balance-sheet, or other document or in any information required or furnished by or under or for the purposes of any provision of this Act, wilfully makes a statement which is false in any material particular, knowing it to be false, or wilfully omits to make a material statement, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.

7. Section 49, NHB Act, 1987

Section 49:
(1) Whoever in any return, balance-sheet, or other document or in any information required or furnished by or under or for the purposes of any provision of this Act, wilfully makes a statement which is false in any material particular, knowing it to be false, or wilfully omits to make a material statement, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.
(2) If any person fails to produce any book, account or other document, or to furnish any statement or information which, under the provisions of this Act, it is his duty to produce or furnish, he shall be punishable with fine which may extend to two thousand rupees in respect of each offence and in the case of a continuing failure, with an additional fine which may extend to one hundred rupees for every day during which the failure continues after conviction for the first such failure.

8. Section 42, State Financial Corporation Act, 1951

Whoever, in any bill of lading, warehouse receipt or other document given to the Financial Corporation, whereby security is given or is purported to be given to the Financial Corporation for any accommodation granted by it under this Act, wilfully makes any false statement or knowingly permits any false statement to be made shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to two thousand rupees, or with both.

9. Section 23, Credit Information Companies (Regulation) Act, 2005

Whoever, in any return or other document or in any information required or furnished by, or under, or for the purposes of, any provision of this Act, wilfully makes a statement which is false in any material particular, knowing it to be false, or wilfully omits to make a material statement, shall be punishable with imprisonment for a term which may extend to one year and shall also be liable to fine.

10. Section 23, Factoring Regulation Act, 2011

If any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules made thereunder, for which no specific penalty has been provided for, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both.

11. Section 37, Actuaries Act, 2006

Section 37:
Subject to the provisions of section 10, any person who,—
(a) not being a member of the Institute,—
(i) represents that he is a member of the Institute in any of the manners mentioned in section 7; or
(ii) uses the designation “Actuary”; or
(iii) uses the letters “AIAI” or “FIAI” after his name; or
(iv) practises the profession of an Actuary; or
(b) being a member of the Institute, but not having a certificate of practice, represents that he is in practice, or practises as an Actuary, shall be punishable on first conviction with fine which may extend to one lakh rupees, and on any subsequent conviction with imprisonment which may extend to one year, or with fine which may extend to two lakh rupees, or with both.

Section 38 and Section 40

12. Section 36AD(2), 46, Banking Regulation Act, 1949

Whoever contravenes any provision of sub-section (1) without any reasonable excuse shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both. and Section 46

13. Section 30, General Insurance Business (Nationalization) Act, 1972

If any person wilfully withholds or fails to deliver to an Indian insurance company as required by section 29 any property or any books, documents or other papers which may be in his possession or unlawfully retains possession of any property of an existing insurer which has been transferred to and vested in an Indian insurance company under section 5 or wilfully applies any such property to purposes other than those expressed in or authorised by this Act, he shall, on the complaint of the Indian insurance company, be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to one thousand rupees, or with both.

14. Section 40, LIC Act, 1976

If any person wilfully withholds or fails to deliver to the Corporation 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 which has been 1. The proviso ins. by Act 8 of 2012, s. 6 (w.e.f. 31-3-2012). 15 transferred to and vested in the Corporation under this Act or wilfully applies any such property to purposes other than those expressed in or authorised by this Act, he shall, on the complaint of the Corporation, be punishable with imprisonment which may extent to one year, or with fine which may extend to one thousand rupees, or with both.

15. Section 21, 22 Banning of Unregulated Deposit Schemes Act, 2019

Any deposit taker who accepts deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less than two years but which may extend to seven years and with fine which shall not be less than three lakh rupees but which may extend to ten lakh rupees.

Section 23 and Section 24

16. Section 76, Chit funds Act, 1982

Whoever contravenes or abets the contravention of any of the provisions of sections 4, 5, 8, 9, 11, 12, 13, 14, 19, 20, 22, 24, 30, 31, sub-section (4) of section 33, sections 46, 47 or sub-section (5) of section 61 shall, on conviction, be punishable with imprisonment for a term which may extend to two years or with fine which may extend to five thousand rupees or with both.

17. Section 47, DICGC Act, 1961

Whoever in any return, balance-sheet, or other document or in any information required or furnished by or under or for the purposes of any provision of this Act, willfully makes a statement which is false in any material particular, knowing it to be false, or willfully omits to make a material statement, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.

18. Section 138, Negotiable Instruments Act, 1881

Section 138:
Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall bedeemed to have committed an offence and shall, without prejudice to any other provision of this 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.

Section 143

19. Section 4 & 5, Prize Chits and Money Circulation Schemes (Banning) Act, 1978

Whoever contravenes the provisions of section 3 shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both:
Provided that in the absence of special and adequate reasons to the contrary to be mentioned in the judgment of the court, the imprisonment shall not be less than one year and the fine shall not be less than one thousand rupees.

And Section 5

Stakeholders can propose and submit their comments/ suggestions regarding decriminalization of a particular act or particular sections of an Act, along with the rationale for the same.

Read all the detail section changes in the attachment below

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