• Legis Scriptor

An Analysis of section 138 of the Negotiable Instrument Act,1881

Authored by Yatharth Chauhan

Keywords: commercial Industry, Jurisdiction, cheque, and Modus operandi.


In the commercial Industry, Negotiable Instrument plays a very imperative role since it is one of the commodious Modus Operandi to transfer the Money. Neither there was any specific canon before the year 1988 to desist people from giving any effect to cheque without having an adequate amount of money in their respective bank account nor there any Mechanism to penalize them. To shield the payee, it is verily obligatory that dishonor of cheque should be penalized. The instant article is deliberate about the objective behind section 138 of the Negotiable Instrument Act, 1881, as well as the area of Jurisdiction. It also aims at scrutinizing whether decriminalizing section 138 is plausible.


Predominantly, dishonor of cheque depicts a situation in which Bank repudiate to make payment of cheque explicitly to payee owing to lack of adequate fund in the bank account. And when such kind of situation takes place, the bank of drawer on his part put forward a memo of return cheque to the bank of payee along with the rationale behind the dishonor of cheque. In the case of Kusum Ingots and Alloys Ltd. v. Pennar Peterson securities Ltd.,[1] the hon'ble Supreme Court has discussed the vital elements of umbrage which is envisaged under section 138 which are as follows:

  1. A cheque must be drawn by a person from that account which is managed by him to make payment to some other person to set aside his debt.

  2. That specific cheque should be introduced to the bank right from that date of the month on which cheque has been drawn within the stipulated interval of six months.

  3. The cheque is reinstated by the Bank because either there is a lack of adequate amount of money to effectively honor that cheque or else the amount exceeds which has to be deposited under the agreement done with that bank.

  4. The payee through a written notice to the payer makes a call for the installment of the decided money within a period of 30 days of a sleep of details from the bank concerning the bounce-back of the cheque as undeposited.

  5. Within a period of 15 days of the sleep of the details, the payer is unable to make installments to the payee.

Here, an important noteworthy aspect is that in case of dishonor of cheque either a civil complaint or criminal complaint is filed. When it comes to a criminal complaint the payer of the cheque shall be penalized with either imprisonment up to 2 years or a fine and it can be increased to twice the total installment of the cheque and sometimes both imprisonment as well as fine. On the other hand, when it comes to the civil suit, it can be pen down under order 37 within the meaning of the Civil Procedure Code provided that the suit must be filed within a period of three years.

Objective of Section 138- Negotiable Instrument Act,1881

In the case of Modi cement Ltd. v. Kuchil Kumar Nandi[2], the court has said that the main objective of section 138 is to stimulate the regulation of banking activities to attain integrity at the time of conducting business via cheques. Therefore, section 138 of the Negotiable Instrument Act,1881 was incorporated with a designated object of giving a special clause by introducing a strict liability when it comes to cheque. The principle about Negotiable Instrument Act states that the law concerning the commercial world was designed to ease the activities related to trade as well as commerce creating a clause of granting sanctitude to the mechanism of credit which can be easily transformable into money. Thus, it would shield the confidence of the creditors in the payer.

Area of Jurisdiction within the ambit of Negotiable Instrument Act, 1881

It is necessary to take into notice that the negotiable instrument Act,1881 do not cover any specific provision concerning the suitable jurisdiction under section 138 when it comes to the criminal charge. In the case of Gautham T.V. Centre v. Apex Agencies[3], the court has established that where the knowledge regarding dishonor of cheque is acquired or where the workplace of Drawee is based that the court would have the jurisdiction to entertain the suit.

Afterward in K.Bhaskaran v. Sankaran Vaidhyan Balan and Another, [4]the court has referred to section 177 and section 178(d) and section 179 within the meaning of the code of criminal procedure. Section 178 implied that if there exist any variability in the sense that where the offense is performed among the various location, then the trial can be conducted in any court possessing power over any of the location. Besides this, the aforementioned provision also states that if the umbrage is committed partly in one area as well as in another area partly then in such circumstances, the court of Law in any of the location can give effect to its jurisdiction to entertain the suit whereas section 177 has been designed by Legislature attentively by employing the word ordinarily which explicitly hinted that the Law is not stable in all suits. Section 179 of the code straightens out its purview.

The court has also made it clear that the Location where the bank is based should not be considered as the only ground to scrutinize the location of umbrage. After taking into the consideration all five essential ingredients of section 138 of the Act as well as section 178(d) of the code of criminal procedure, the court has also said that it is not obligatory that all the five essential components are performed at the same location since it is plausible to accept that these five components can be performed at a different location. However, all these are vital for the accomplishment of an offense under section 138 of the Act. Thus, if these components were implemented in five different locations then in such a situation any of the court employing jurisdiction in any of the areas could be a location of trial for umbrage within the meaning of section 138.

The case of Harman Electronics Pvt. Ltd v. National Panasonic India Pvt. Ltd [5]has turned down the concept of Jurisdiction. The court has said that the legal proceedings should not be affected on the ground of statutory Notice however, merely approval of notice can. Since the clause of section 138 would only construct the offense and the clause only deals with the circumstances necessary for considering the cognizance. In the year 2014, the supreme court in the case of Dashrath Roop Singh Rathod v. the State of Maharashtra and Another [6]said that there is a quit difference between committing the offense as well as the apprehension of umbrage. Under section 138 of the Act, the legal proceedings take place only when the drawer is unable to discharge the payment. The suit can be pen down only in those courts inside whose administration the cheque is demonstrated for encashment.

The Gujarat High Court after the Modification in 2015 in the case of Brijindra Enterprise v. State of Gujarat and Another [7]discussed the canon about territorial jurisdiction for typing the suit on the ground of Dishonor. From the perspective of the Negotiable Instrument Act,2015, the suit can be brought under section 138 inside whose authority the branch of that particular bank is based and the bank should be regulated by the payee.

Decriminalizing section 138 is Plausible ?

It is crystal clear that the main purpose of the legislation in introducing section 138 is to shield payment. And the incarnation of punishment would turn down the chances of fraud as well as cheating. Actus Rea and Mens Rea as well are the vital elements of a crime. And dishonor of cheque is a criminal offense and there is no exigency to established Mens Rea. If section 138 gets Decriminalizing then in such episodes it will scale up the chances of fraud and affect the integrity of cheque and creditors have to incur the loss. Section 138 of the Act does not permit any person to avail of the unreasonable benefits because of the damnation.

Decriminalizing section 138 of the Act will have a cascading effect and the whole mechanism of the Negotiable Instrument Act 1881 would become pointless and hence it would cause the grave miscarriage of the object behind the Negotiable Instrument Act,1881. Punishment as well as the price of litigation accompanying the fine are the vital components to ensure the installment of cheque on time. Strict Liability is the only Modus Operandi to preserve the confidence as well as credibility concerning the transaction.


Section 138 of the Act fortified the payee from any kind of unlawful transaction. It is necessary to highlight that the declarations under section 138 that is to say "account is incompetent to admire the cheque or else it crossed the money to be deposited from that specific account is a class and disgrace of a cheque for various reasons say for instance restriction on payment, discontinue of account, etc. are merely a variety of that class. Similarly, it is no less than a fact that every aspect has its pros and cons and so with decriminalizing section 138 of the Act. Although on decriminalizing section 138, there will be an ease in performing the business but the same will debilitate the confidence of the creditors.






Foot Notes: [1] (2000) 2 SCC 745 [2] (1998) 3 SCC 249 [3] (1993) 1 crime 723 (Andhra Pradesh) [4] (1999) 7 SCC 510 [5] (2000) 1 SCC 720 [6] (2014) 9 SCC 129 [7] Criminal Misc. Application No. 13062 of 2011