Decriminalisation Of Dishonour Of Cheque- A Right Initiative?

Vinay Pandey

4 July 2020 2:31 PM GMT

  • Decriminalisation Of Dishonour Of Cheque- A Right Initiative?

    Introduction: The Ministry of Finance ("Finance Ministry"), Government of India has recently floated a proposal dated June 08, 2020, inter alia, to decriminalise the offence of dishonor of cheque which is punishable under section 138 of the Negotiable Instruments Act, 1881 ("NIA"). The main reasons, inter alia, provided by the Finance Ministry in support of decriminalising the...


    The Ministry of Finance ("Finance Ministry"), Government of India has recently floated a proposal dated June 08, 2020, inter alia, to decriminalise the offence of dishonor of cheque which is punishable under section 138 of the Negotiable Instruments Act, 1881 ("NIA"). The main reasons, inter alia, provided by the Finance Ministry in support of decriminalising the said offence are that it will attract investments both from domestic and foreign investors; help in doing business with ease; unclog court system and prisons.

    This article will analyse whether there is actually any need to decriminalise the offence of dishonor of cheque in order to attract investments and ease working of businesses.

    Overview of Section 138, NIA:

    The prime motive of introducing section 138 into the statute book was to infuse faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments.[1] Section 138, NIA stipulates imprisonment, on having found guilty, as punishment to the accused which may extend upto 2 years, or fine upto double the amount of the cheque in question or with both. The legislative intent was quite clear which was to deter the wrongdoer (drawer) for committing any wrong against the drawee (payee) in a commercial transaction. It is, perhaps, for this reason the said section has both the measures envisaged within it i.e. punitive and compensatory.

    Apart from the remedy provided under section 138 NIA, Complainant (drawee) can also explore other legal options against the accused (drawer) of the cheque by filing civil recovery suit and a police complaint for having committed the offence of cheating. All these litigations are independent of each other and can be prosecuted by the complainant simultaneously.[2] Needless to mention, a Complainant embarks into several litigations bearing his foremost objective to recover his money as soon as possible. More often than not, Complainants are seen interested in speedy resolution of their dispute and are rarely inclined towards sending the drawer of the dishonored instrument to jail.

    Legislative Amendments:

    It would be unjustified if it is argued that the legislators were unmindful of the fact that complaints under section 138, NIA were burgeoning and creating docket explosion in various courts of India. The Government, in order to contain the ever increasing docket burden on Courts, introduced Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.[3] The said Act, amongst other things, introduced sections 143, 145, 147 in NIA as it was rightly realized that the existing provisions viz; sections 138 to 142 in Chapter XVII of NIA were deficient in dealing with cases pertaining to dishonor of cheques. However, despite introduction of Section 143 which gives power to Magistrates to try cases summarily; to hold the trial on a day-to-day basis; to endeavor to conclude the trial within six months[4], no strict adherence has been ensured to that effect. Resultantly, the efforts of the legislators made via Amendment Act of 2002 cannot be labeled as 'successful' in trimming the time consumed by Courts qua adjudication of cheque bounce cases.

    Judicial Activism:

    The Hon'ble Supreme Court of India has also contributed in streamlining the adjudicatory process concerning section 138, NIA. The Apex Court in some matters had allowed the contesting parties therein to compound the offence even before the insertion of section 147, NIA. For instance, in "O.P Dholakia v. State of Haryana"[5] the coordinate bench of the Hon'ble Supreme Court permitted compounding of the offence even when the matter had reached its fag end and conviction of the accused had already been upheld by all the three courts below. The Apex Court has also laid down detailed guidelines mentioning the modality of effectuating compounding of the offence of dishonour of cheque under section 147, NIA.[6] Though the said guidelines are flexible in nature depending upon the facts and circumstances of the case, yet a guiding structure had been laid down by the Apex Court detailing how and when the offence can be compounded. In "Meters and Instruments Private Limited and Another v. Kanchan Mehta"[7], the Hon'ble Supreme Court, inter alia, laid emphasis on summary disposal of cheque bounce cases and a departure from the said procedure can be made where the case falls under the second proviso of section 143 and it becomes necessary for the Magistrate to use such power having regard to the circumstances of the case. Lately, the Apex Court observed and suggested the Reserve Bank of India to develop a new performa of cheques in order to include purpose of payment for adjudication of real issues. If this gets done, it would tend to discourage dishonest drawers and keeps them in check to take vexatious defence of "cheque given as a security" which is not uncommonly taken by the accused in a cheque bounce case.

    Possible Repercussions of Decriminalisation:

    It can well be assumed that if section 138, NIA gets decriminalised, the day‑to‑day commercial transactions may go for a toss. Even today a large chunk of people transact via cheque and are less inclined towards online payment modes such as RTGS/NEFT etc. Furthermore, drawing a cheque is much more convenient than transferring through online modes. The proposal to scrap section 138, NIA may prove to be a bounty for dishonest drawers which may create unpleasant situation resulting in strained commercial relationships. The attempt of the Government to taking away the specific remedy provided under section 138, NIA would eventually constrain a bonafide payee to file a recovery suit against the drawer for the unpaid amount. In such process not only the payee has to wait long for adjudication, he has to bear a hefty court fee at the very outset which is unavoidable in any circumstance whatsoever. The possible shift of Complainants from Magistrates' Court to Civil Courts may add‑up more volume of cases to the already overburdened Courts affecting their disposal rate. In the absence of any other effective and efficient alternative, the said proposal of the Government has all the ingredients of being labeled as 'self‑defeating' move.

    What can be done?

    The incumbent Government in lieu of scrapping out the offence completely from the statute book is required to ponder on measures for speedy disposal of cases falling under section 138. One such way is by amending section 143, NIA whereby direction can be made to Courts to dispose of 138 matters summarily and all efforts shall be made by Courts to dispose of the case within six months after the appearance of the accused. It shall only be in exceptional cases that a Court can extend the time limit further for a period not exceeding six months'. As regards the issue of delayed appearance or non-appearance of the accused in 138 cases, the Government must wait for the suggestion which the Hon'ble Supreme Court is expecting to get from the amicus curiae appointed in Makwana Mangaldas Tulsidas (supra). The Government may also hold consultation with the Reserve Bank of India to device a mechanism whereby the holder of a cheque can verify online whether the account of the drawer is 'active' or 'closed'. Additionally, assuming that Reserve Bank of India would device a performa expressly mentioning the purpose of payment on the face of the instrument, it is suggested that the account holder at the time of closing the account should return to the bank his cheque book along with remaining leaflets and state on affidavit that 'no cheque has been truncated which would come up for clearing after closing of the account'. This would keep a vigil eye on dishonest drawers who in a routine manner issue cheque to the payee and thereafter discreetly closes the account. All in all, Government ought to stand up to the occasion to remedy the problem and should not espouse scrapping 138, NIA.


    In view of the above, it can be said that there is absolutely no need to decriminalise section 138, NIA as it will not help in achieving any fruitful result much less investments and/or ease of doing business. The incumbent Government must think constructively by making the procedure prescribed thereunder less technical and enforce section 143 in true letter and spirit. Once the said goal is achieved and the cases concerning section 138 are being decided expeditiously and in a time bound manner, it would then be likely to result in unclogging the Court system. Needless to say, a Complainant would always prefer a process which is fast and less cumbersome and is ever ready to shun all other means of recovery which are dilatory and costly. Speedy disposal of cases would infuse more confidence of the public in the adjudicatory system which resultantly likely to attract more investors (domestic and foreign) and simultaneously keeps dishonest drawers of negotiable instruments in check.

    (The author is a practicing advocate at the High Court of Delhi and can be reached at The views expressed herein are personal to the author.)

    [1] Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663

    [2] Dr.Lakshman v. State of Karnataka and others (2019) 9 SCC 677

    [3] The Negotiable Instruments (Amendment And Miscellaneous Provisions) Act, 2002 Introduced in Parliament on July, 09,2002

    [4] Instituted by Act 55 of 2002, sec 10 (w.e.f 06.02.2003)

    [5] (2000) 1 SCC 672; see also Sivasankaran v. State of Kerela & anr., (2002) 8 SCC 164; Kishore Kumar v. J.K. Corporation Ltd. (2004) 12 SCC 494; Sailesh Shyam Parsekar v. Baban (2005) 4 SCC 162.

    [6] Damodar Supra

    [7] (2018) 1 SCC 560

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