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Section 138, NI Act - clean sheet design

XKDR Forum

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14th April 2023

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Agenda

Approach to clean sheet design
Analysis of economic incentives across stages of a Section 138, NI Act case
Insights from ecourts data
Emerging insights on litigant behaviour
Framework to analyse recommendations for clean sheet design

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Our Approach to clean sheet design

Over the last two month, the CDC (PUCAR) has done

First principles design thinking
Discussions with the legal fraternity and other stakeholders
Field observations across multiple courts

In this discussion, we aim to augment these discussions / insights with

An analysis of the incentives of stakeholders as rational actors maximizing their self interest
Empirical data to back the collective’s hypotheses on litigant behaviour

The collective has identified multiple suggestions - (Big Ideas Synthesis).

We will need to evaluate these multiple suggestions, test them against some parameters of effectiveness, efficiency, fairness and prioritize them before packaging and presenting them

Our focus today will be on the process followed within courts - targeted towards an audience of judges (aimed at HC)

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Stages in a Section 138, NI Act (1/4)

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Step No.	Stage	Decision Makers	Process / Steps	Incentives Discussion
1	Pre-Trial	Petitioner	Actions taken prior to the cheque being dishonoured
2a	Demand Notice	Petitioner	Payee sends legal notice to the cheque drawer within 30 days of non-payment
2b		Respondent	Drawer has 15 days of notice to respond and pay
2c		Petitioner	Payee files a case within 30 days of payment failure	Incentive to file quickly to avoid limitation issues
3a	Filing of Complaint	Petitioner	Payee (now petitioner) has a choice to seek other types of relief, like filing a case in civil court, or filing 406/420 IPC etc.	Section 138 preferred due to criminal nature and presumptions granted
3b			Petitioner can file a complaint within 30 days of date of 2b Case filed at the registry at Court of Metropolitan Magistrate, Judicial Magistrate - I Class, or Special Court. Registry scrutinises the filed complaint for defects.	Potential incentive for petitioner to lie regarding address of accused / other details - it “could” lead to a non-bailable warrant being issued - to coerce respondent
3c			Petitioner files the basic facts, along with an affidavit for the case
3d		Court Registry	Registrar examines case, scrutinizes for errors

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Stages in a Section 138, NI Act (2/4)

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Step No.	Stage	Decision Makers	Process / Steps	Incentives Discussion
4a	Cognizance of Complaint	Judge	Judge can choose whether to proceed as a summons trial or a summary trial (260 CrPC). Judges are expected to provide detailed reasons before converting it to a summons trial
4b		Petitioner	Petitioner appears in court for the first time to give a sworn statement of claim (200 CrPC, 202 CrPC) before the Judge	Petitioner has the incentive to turn up at the earliest, but this doesn’t always happen
4c		Judge	Judge examines the complaint issues summons (204 CrPC) OR rejects the case (203 CrPC)	Judge may wish to dismiss to avoid additional caseload, but unlikely given Section 138 presumptions
4d	Summons	Judge	Summons is issued to the respondent (144 CrPC, 204 CrPC) by the court on the contact details presented by the complainant requesting presence on date
4e		Respondent	Respondent may choose to appear on the given date	Respondents prefer to delay
4f		Judge	In case of non-appearance, judge issues bailable warrant / non-bailable warrant / marks the respondent as absconding. The Judge can use CrPC 82,83 to attach property of accused	Is speedy disposal here an incentive for the judge to proceed to BW / NBW quickly? Or take other coercive action?
4g			Police follows up on the accused	Limited incentives for police to focus on Section 138 matters vs other criminal cases

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Stages in a Section 138, NI Act (3/4)

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Step No.	Stage	Decision Makers	Process / Steps	Incentives Discussion
5a	Bail	Respondent	Accused presents themselves in court. Substance of the accusation to be read out to the accused. Record of plea of the accused is done.	Incentive to always plead not guilty
5b		Respondent	Accused applies for a bail bond with surety	Incentive to comply with bail requirements
5c		Judge	Judge grants bail	None. Judges rarely deny bail.
6a	Trial	Judge, Petitioner, Respondent	The Judge or litigants may choose to opt for Lok Adalat or other alternative means of resolution	The Judge has an incentive to refer the case outside court to reduce caseload The petitioner has limited incentive to agree to these (limited choice to disagree either in case of strong suggestions by judge) The respondent has the incentive to agree to all non-binding attempts at mediation to buy time

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Stages in a Section 138, NI Act (4/4)

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Step No.	Stage	Decision Makers	Process / Steps	Incentives Discussion
6b	Trial	Petitioner, Judge, Respondent	Presentation of evidence by the prosecution Recording of statement of accused Defence evidence Cross Examination Written Arguments filing Oral Arguments	During the trial, it is in the respondent’s incentive to contest all facts
6e	Trial	Petitioner, Judge, Respondent	Adjournments - As per 143(2) of NI Act, a trial should “be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial beyond the following day to be necessary for reasons to be recorded in writing.”	Judges adjourn regularly, possibly to avoid hearings due to case load Or they do not want to proceed to next stages without all parties because it may be appealed on procedural grounds
7a	Judgement	Judge	Judge presents the decision on the case
7b	Judgement	Judge	Judge presents the final judgement
8a	Enforce- ment	Judge, Respondent	Respondent makes the required payment if found guilty
8b	Enforce- ment	Judge, Respondent	Role of court in case on non-payment - uncertain

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Summary of Incentives

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Petitioner	File quickly, and choose Section 138 over other issues Turn up for judge to take cognizance of complaint Limited incentive to agree to Lok Adalat or ADR options Turn up during trial phase to avoid adjournments for speedy justice
Respondent	Avoid summons Delay through adjournments Refute all evidence, all facts to the extent possible Agree to any non-binding attempts at mediation that can buy time
Judge	Potential incentive to issue Bailable warrants / non-bailable warrants / attach property to force respondent to appear for speedy resolution Refer the case out of court Adjourn hearings to save on time and hear other cases OR to avoid appeals to judgment on procedural grounds
Police	Limited incentives to follow through on summons

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Data Work - Three pieces of Analysis

Nature of the litigant in Section 138, NI Act Cases
Summary Statistics from previous research
Analysis of hearings to identify reasons for delays

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Nature of Litigant Analysis - Methodology

We examined ecourts data across 400,000+ cases filed in Mumbai across 11 courts across both disposed and pending cases

The CNR (Case Number Record) contains the year of registration
We classified litigants as “finance”, “company” and “individual” based on the name of the litigants

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Court	# cases
Additional Metropolitan Magistrate, Mazgaon, Mumbai	120760
Chief Metropolitan Magistrate, Esplanade Court, Mumbai	48679
Additional Metropolitan Magistrate, Borivali, Mumbai	48038
Additional Metropolitan Magistrate, Bandra, Mumbai	43108
Additional Metropolitan Magistrate, Ballardpier, Mumbai	42406
Additional Metropolitan Magistrate, Vikroli, Mumbai	32225
Additional Metropolitan Magistrate, Bhoiwada, Dadar, Mumbai	23801
Additional Metropolitan Magistrate, Girgaon, Mumbai	22131
Metropolitan Magistrate, Mulund, Mumbai	13456
Metropolitan Magistrate, Andheri, Mumbai	12400
Additional Metropolitan Magistrate, Kurla, Mumbai	10433
Total	417437

Any insights on why Mazgaon / Sewree has so many cases?

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Nature of Litigant Analysis - Litigant Type

Finance firms file 53% of all cases in Mumbai
Individuals make up 70% of all respondents

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	Respondents →
Petitioners ↓	Financial Firm	Non Financial Firm	Individual	Total
Financial firm	0.2%	15%	38%	53%
Non financial firm	0%	10%	21%	30%
Individual	0%	6%	11%	17%
Total	0%	30%	70%	100%

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Nature of Litigant Analysis - Case Disposal over the years

We see a 90%+ disposal rate for cases registered till about 2015, after which it declines

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Nature of Litigant Analysis - Disposal Rates by Type of Litigant

75% of cases filed by finance firms in 2020 have already been disposed, �compared to only 25% of cases filed by individuals in the same year
This tells us that the nature of the cases filed by these “litigant types” is different.
The hypothesis is that cases by finance firms are less “complicated”, compared to cases filed by companies or individuals

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	finance		company		individual
Year	Disposed	Pending	Disposed	Pending	Disposed	Pending
2015	74%	26%	68%	32%	66%	34%
2016	61%	39%	64%	36%	64%	36%
2017	78%	22%	53%	47%	50%	50%
2018	76%	24%	48%	52%	40%	60%
2019	49%	51%	41%	59%	27%	73%
2020	75%	25%	36%	64%	25%	75%
2021	42%	58%	26%	74%	17%	83%
2022	10%	90%	13%	87%	9%	91%

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Nature of Litigant Analysis - Disposal Rates by Courts

Any insights on why the cause for this variation?

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Summary Statistics from previous research in the field (1/2)

From - Characterising cheque dishonour cases in India: Causes for delays and policy implications by Devendra Damle, Jitender Madaan, Karan Gulati, Manish Kumar Singh and Nikhil Borwankar https://daksh-lawtech-iitd.org/wp-content/uploads/2022/04/Paper-cheque-Dishonour.pdf
The dataset contains 48,149 Section 138, NI Act cases from 2014 to 2018
On average, cases take about 500 days to get disposed of.

While this number is similar for both contested as well as uncontested cases. Contested cases have on an average taken 17 hearings to get disposed of as opposed to 11 hearings for uncontested cases.

On average, the complainant has to wait for 80 days to get the court to issue summons to the accused.
The non-appearance of the accused typically adds 7 hearings and up to 200 days to the total case duration. In 65-70% of cases, the accused missed at least one hearing

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Summary Statistics from previous research in the field (2/2)

The non-appearance of the accused typically adds 7 hearings and up to 200 days to the total case duration. In 65-70% of cases, the accused missed at least one hearing
78% of cases are settled, withdrawn, or compounded. The case gets sent back to the court for adjudication only in 22% of cases.

The stage at which the case is referred to mediation has a bearing on whether or not mediation will lead to delays.

Jurisdictional issues (Case transfers) typically add 271 days to the total case duration. Further, jurisdictional issues typically add 5-6 hearings to the total hearings required to dispose of a case. They identified ~30% of cases had jurisdictional issues

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Order Level Analysis of Section 138 Cases - Methodology

To get a deeper sense on how Section 138, NI Act cases proceed, we evaluated 32 cases to understand trial proceedings
The objective was to understand the

nature of delays in the system
attribution for cause of delay to the petitioner, respondent or the court
stage in the trial that consumes the court’s time the most.
stage at which cases get disposed

We picked cases across Karnataka, Kerala, and Maharashtra and Odisha and queried the ecourts data for information regarding the hearings

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Order Analysis - Results of these cases

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Final Result	# cases
Settled	14
Withdrawn	10
Acquitted	3
Convicted	2
Transferred	2
Dismissed	1
Total	32

What happened to these cases?

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75%

How far into the different stages did they get?

Stage	Sub-Stage	# cases	%
Complaint (9)	Complaint	6	28%
	First Hearing	2
	Appearance - Petitioner	1
Summons (4)	NBW	2	13%
	BW	1
	Summons	1
Bail (2)		2	6%
Trial (13)	Lok Adalat	8	40%
	Trial	4
	Evidence - Defence	1
Judgment (4)		4	13%
Total		32	100%

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Order analysis - Which stage did the court spend its time?

46% of the hearings were complaint, summons, bail, 38% were hearings at the trial stage

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Stage	# hearings	% of hearings
Complaint	52	22%
Summons	45	19%
Bail	12	5%
Trial	90	38%
Judgment	5	2%
Disposed	32	14%
Grand Total	236	100%

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Order Analysis - What happened to these hearings?

We studied each of these hearings and tagged them as success or failure
A hearing is not a failure if there is application of judicial mind or progress from one stage of the case to another
A failed hearing is typically an adjournment, caused by the court not sitting, not finding time, or due to parties not appearing, or parties pleading for additional time

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Hearing Failure	# hearings	%
No	119	50%
Yes	100	42%
No data	17	7%
Grand Total	236	100%

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Order Analysis - What happened to these hearings?

We then tried to attribute the reason for the hearing failure

While half (22) of the court adjournments were due to COVID-19, the other half were due to leave

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Attribution	# hearings	%
Court	44	44%
Respondent	28	28%
Petitioner	16	16%
Both	11	11%
Summons	1	1%
Grand Total	236	100%

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Summary of Insights from Data

Cases rarely go to conviction (2/32)
Cases are rarely contested, and mostly settled or withdrawn (75%)

A case is said to be contested if it goes through the evidence stage
However, if after the evidence stage, the parties settle, it is treated as uncontested

Contrary to expectation, it’s not just the respondents but petitioners often also do not turn up (16%)
When coupled with the information that a large number of petitioners are financial firms, this leads us to the possible hypothesis that the threat of litigation alone is sufficient

This might explain the higher disposal rates for financial firms that we observed in Mumbai.
Perhaps why banks and institutions may prefer Section 138 over other means of debt recovery

Section 138, NI Act is more a method of coercing the respondent to settle
The court is responsible for a large number of hearing failures due to leaves.

We need to better understand whether adjournments by the court due to the absence of one party are justified
Was the party required? Or are judges disposing off hearings just to get through the caseload?

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Thank You

Questions? Comments?

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