SC to examine legality of NI Act

Asserting that liberty is the most “precious” thing the Constitution has given to the citizens, the Supreme Court has decided to look into the legality of a provision of the Negotiable Instrument (NI) Act, which enjoined jail term in cheque dishonouring cases.

A three-judge bench presided over by Justice R M Lodha fixed the PIL filed by
Mumbai-based lawyer Yashwant Shenoy for final hearing after the Centre submitted an affidavit stating RBI data which showed that the number of borrowers taking agricultural loan and languishing in jails due to civil imprisonment pending under 138 of the NI Act was only 19 (three for public sector and 16 for private sector banks).

The NI Act provided for maximum imprisonment of two years with fine which may go up to twice the amount of the cheque in case of even those who were willing but unable to repay. Shenoy submitted that 19 farmers were put behind bars owing to their failure to repay the loan due to poverty. To be poor was no crime, he contended.

Acknowledging his point of view, the court said: “We will examine the matter. You have raised certain important issues having wider ramification. We have to see if it suffers from any Constitutional flaws. Liberty is the most precious thing that the Constitution has given to the citizens. Our task at hand is to protect it. There is a duty cast upon us to see that whenever liberty is at peril, we have to interfere.”

The petitioner contended that Section 138 of the Act was violative of Articles 14 (right to equality) and 21 (right to life and liberty) of the Constitution as it did not distinguish between those who were ready to pay the amount of dishonoured cheques but did not have money, and those who did not want to pay despite having the financial resources.

On this, the bench, also comprising Justices J Chelameswar and Madan B Lokur, observed, “Constitutionality of a law passed by Parliament is presumed until it is declared otherwise.”

In its affidavit, the finance ministry defended a provision that penalties in case of dishonour of cheques due to insufficiency of funds in the account of drawer were incorporated with a view to encourage the culture of use of cheques and enhancing the credibility of instruments.

It further said the prosecution for dishonour of cheques under Section 138 of the NI Act was separate and distinct from recovery of loans by banks and financial institution.
The Centre also maintained the farmers and individuals borrowing from banks and financial institutions and corporate borrowers are two separate and distinct classes.

In case of loans to corporates, it may be to finance a project and there is no equated monthly instalment for repayment. It also submitted that the RBI had on time-to-time basis announced several policy measures to increase the availability of institutional credit to farmers.

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