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Legal Matters | Decriminalise economic offences, but with uniformity

The recent proposal to remove jail-term for certain economic offences contains inherent contradictions

June 30, 2020 / 09:44 AM IST

If you were a casual observer of the Indian legal system, you would be forgiven for thinking that ‘Round ‘em up’ is the official State policy for making its subjects fall in line. Just last month, the district authorities of Gautam Buddh Nagar (Noida) tried to ensure residents downloaded the Aarogya Setu app by imposing a six month jail term on any person who was found without the app on their phone.

Such provisions are not rare in Indian laws. For instance, Section 29 of the SARFAESI Act, 2001 (which deals with recovery of debts) provides that if any person contravenes or attempts to contravene the provisions of the Act, he shall be punished with imprisonment for a term that may extend to one year or with fine, or both. The clause is drafted in such a way that any violation, however minor, can potentially land you up in jail.

Now, the finance ministry has released a list of 19 laws, seeking public opinion on how some economic offences could be decriminalised. It categorises these as ‘minor offences’, acts which are of the nature of inadvertent omissions or negligence rather than fraud. Some of these, such as Section 138 of the Negotiable Instruments Act, which penalises dishonour of cheques with jail-term of up to two years or with fine of up to two times the value of the bounced cheque, has been debated threadbare.

Some of the other provisions in the list are much more critical.

One set of laws includes sections of the Banning of Unregulated Deposit Schemes Act, 2019, and the Prize Chits and Money Circulation Schemes Act, 1978 — both aimed at curbing the widespread practice of accepting deposits from the public, promising superior returns (pyramid schemes, guaranteed returns, etc), often by charlatans. Then there are provisions of the RBI Act, 1934 that penalised accepting of deposits without obtaining regulatory approval, and unauthorised operations under the Payments and Settlement Systems Act, 2007. Curiously, the digital equivalent of cheque bounces — Section 25 of the Payment and Settlement Systems Act (let’s say, if you default on your EMI payment), also carrying a maximum sentence of two years — does not find mention in this list for potential decriminalisation.


Then there is another set of provisions aimed at decriminalising the wilful and deliberate furnishing of wrong information (or not furnishing at all) to investigating authorities, regulators, and to insurance companies. However, similar penalties in the Income Tax Act (Section 276CC — failure to furnish return of income; Section 277 — false statement in verification) are not being disturbed — and this is an inherent contradiction.

The Finance Minister had earlier proposed decriminalising some parts of the Prevention of Money Laundering Act. One must await details on what penalties are actually sought to be reduced.

How To Enforce The Law?

Penalties exist because without them, society will have to rely on the collective conscience of its citizenry; and that’s hardly reliable. However, most-advanced nations have devised a way to dis-incentivise non-compliance, without disproportionately harsh measures. These include warnings, pecuniary penalties (a fixed fine for each day or month of delay in compliance), enforceable undertakings (to wind up an unauthorised undertaking), civil bans (prohibition on joining the board of any company for a fixed period, or a prohibition on raising fresh funds from the markets), and so on.

Ideally, jail-terms should be invoked only when none of these options satisfactorily address the problem. This is even more important in countries such as India where the criminal system is already overburdened, and where the consequences will be realistically faced only years after the offence. For example, in 2018, this author argued a case at the Supreme Court regarding the dishonour of a cheque (of less than Rs 50,000) in 1991 — a delay of over 25 years!

So somebody who is not predisposed to repay his/her debt is quite unlikely to be swayed by the mere criminalisation of the offence, as long as he/she can litigate it out. Moreover, the courts have been willing to compound (waiving off jail term) the offence where payments were made even after conviction — unwittingly incentivising delaying repayment till all options are exhausted.

The Power Of Dissuasion

The entire gamut of penalties for not (or delays in) furnishing records can be addressed with monetary fines — simply because the damage is not irreversible. On the other hand, offences such as running a multi-level marketing or money circulation (often, a ponzi) scheme should have criminal penalties, because the aim of the legislation ought to be to prevent such schemes even before they take root. In an ideal criminal justice system, the government would also pre-empt such offences with widespread awareness programmes.

However, to have indiscriminate criminal punishments (such as another recent UP law which effectively criminalised the import of alcohol into the state with a five-year jail term — Many Noida residents buy alcohol from adjacent Delhi to take advantage of the lower excise duty; at best, a tax violation) serve no purpose apart from giving the policeman an extra arm to harass the populace. A much more comprehensive rethink is called for.

Abraham C Mathews is an advocate based in Delhi. Twitter: @ebbruz. Views are personal.
Abraham C Mathews

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