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Decriminalization of criminal offence under 138 of Negotiable Instrument Act

Authored by Shaik Uzma

Keywords: cheques, Decriminalization, offence.


Section 138: Dishonor of the insufficiency audit, etc., of the funds kept in the account. When the drawer has given a cheque in respect of the drawee for the discharge of debt or liability, the above-mentioned portion of the Act falls into the frame, and the cheque is dishonoured by the bank upon presentation due to insufficient funds in the drawer 's account. The Section imposes criminal responsibility with imprisonment that may be extended to 2 years or with a fine that may be extended to twice the value of the cheque, or both. In a catena of judgments, however, the Supreme Court of India has held that the crime committed under Section 138 of the Act is more of a civil nature.


The Indian economy has been significantly impacted by the COVID-19 pandemic. The central government has implemented some reforms in the enforcement and applicability of different laws in areas such as Income Tax, GST, Customs and Central Excise, and the Insolvency and Bankruptcy Code 2016 ('IBC') to curb and mitigate the impact of the ongoing crisis. One such measure introduced by the Ministry of Finance relates to the decriminalisation of 39 minor economic offences, including the decriminalisation under Section 138 of the Negotiable Instruments Act, 1881 which is the offence of dishonour of cheques. In a notification dated June 8, 2020, Finance Minister Nirmala Sitharaman ('the Act') set out the reasons for the decriminalisation of minor offences that are not dishonest or of malafide intent, aimed at ensuring ease of doing business and attracting foreign and domestic investment.


In India, in 1988, the criminalization of writing cheques without a proper balance was enforced. It was an update to a much older British statute, made in 1881, called the Negotiable Instruments Act. The endemic issue of cheques being dishonoured was the justification for the amendment. This has made it impossible to make purchases where there is no instantaneous payment and distribution. Cash transactions were encouraged by mistrust of cheques, with consequent counterfeiting problems, storage and moving cash costs, and the underground economy's law enforcement problems.

Around 30 percent of criminal cases in Indian courts have been reported to be either cheque bouncing or traffic offences. In order to decriminalise the crime of bouncing cheques, the government has then proposed amending the Negotiable Instruments Act (N.I. Act). The purpose of this move is to decongest the judicial system.

No calculation of the increased burden on the criminal justice system was made in 1988, when the amendment was adopted, because of the statute. This episode has taught us all that careful estimates need to be made about the costs of implementing the law any time legislation is enacted and these costs can find their way into budgets.

About the Provision

Section 138 is referred to in Chapter XVII of the NI Act, which deals with "Sanctions in the event of failure to pay such cheques for insufficient funds in accounts." The object of any proceeding initiated by Section 138 of the NI Act, 1881, is that individuals should not use cheques as an instrument of dishonesty. If a cheque is presented by a person, it must be honoured, and if it is not honoured, by issuing a warning, the person is given an opportunity to pay the sum of the cheque, and if he still does not pay, he must face criminal charges and repercussions.

Punishment for the offence

An individual shall be deemed to have committed an offence and shall be punished, without regard to any other clause of this Act, by a period of imprisonment that may be extended to two years or by a fine that may be extended to twice the amount of the cheque or both. In the matter of Modi Cements Ltd vs. K.K. Nandi[1], the Hon'ble Supreme Court of India referred to the purpose of the legislature to incorporate punitive provisions., in which the court noted that the primary reason for implementing such a clause was to stop the unscrupulous use of cheques and to ensure the integrity of the undertakings.

Why Should It Not Be Decriminalized?

Objective of the Act

The aim of Section 138 of the NI Act is to enhance the reputation of the instrument and make a positive contribution to trade and trade throughout India. It resonates with the efforts of the Government of India to promote doing business.Cheques have been commonly used as a form of credit rather than as a means of payment, as a trading practise. The issuer normally issues a post-dated cheque for payment in lieu of goods. Therefore, after issuing the cheque and its consequent dishonour, the decriminalisation of the entire Section138 of the Act will pave the way for unscrupulous drawers to escape penal liability altogether.

Decriminalization will remove fear of doing wrong

At present, apart from the penalty of redemption of twice the sum, the drawer of the negotiable instrument such as the cheque still has a fear of facing criminal punishment. Such apprehension will be eliminated by the planned amendment in the law. The cheque instrument would lose its good faith and consumer confidence, thus reducing the number of cheque transactions.

The provision under Section 138 itself provides a protection for an honest cheque cabinet.

The offence is considered to have been committed only after receipt of the notice of demand from the payee or holder in due time (as provided for in the NI Act) and at the expiry of 15 days after such receipt. In this respect, the drawer(s) of such a cheque(s) has the right to pay the balance of the cheque within 15 days and not to face any criminal action. Section 147 of the NI Act, however, makes the offences compoundable under that Act. Therefore, at some point, both sides can compromise and the drawer can avoid further prosecution.

Costly affair

Compared to civil cases, procedures under Section 138 warrant lower court fees. The holders of such cheques will now be forced to turn to civil courts to get respite after decriminalising the dishonour of the cheque. The workload of civil courts would be complemented by all matters involving the dishonour of cheques. It will also eliminate the holders' right to recover up to 20% of the gross cheque sum from the interim payout. Right at the start of the u / s trial, this amount can be recovered as per 143A of the Act of NI.

Therefore, it may be difficult to afford expensive and time-consuming civil remedies to recover their unpaid dues from the drawer of such defaulted negotiable instruments for poor litigants / employees belonging to economically weaker backgrounds pursuing recovery.

Period of Time

A substantial number of criminal cases lodged pursuant to Section 138 of the NI Act are usually compounded / settled either on or before the very first date of the defendant's deposition or at the initial stage of the proceedings. Accordingly, the purpose of lodging such criminal charges is accomplished in a substantial number of cases.

The decriminalisation, however, would lead to time-consuming litigants resorting to civil remedies such as restitution litigation. The obtaining of a court order and the successful execution of such decrees would be a lengthy and long-drawn procedure even after the judgement. The alternative approach to pursuing recovery from civil courts is time-consuming and expensive as the court fee payable at the time of bringing civil suits is far higher than the court fee payable at the time of filing a criminal case.


This amendment has been proposed by the central government with the aim of SabkaSaath, Sabka Vikas and Sabka Vishwas. Whether this move will help everyone is something that policymakers must take a look at. One side of the economy will benefit from the proposal at the expense of the other. The threat of criminal prosecution would be evaporated by decriminalisation, resulting in the issuance of cheques with no legal responsibility of actually making the payment.

Other alternatives to the decriminalisation of Section 138 of the Act need to be considered by the central government. The introduction of this plan would generate more barriers than decreases for a stronger economy. Via various judgments of the supreme court, it has been established that the crime referred to in Section 138 is a civil wrong in nature, but it has been given a criminal edge to penalise the perpetrators, given the very nature of the crime civil courts may be given jurisdiction to adjudicate on cases involving dishonour of small amounts cheques, it will minimise the number of frivolous suits.


Foot notes:

[1] 1998 (3) SCC 249