The government of India by way of a reason of statement issued on 8th of June 20201 has made the announcement of undertaking actions to provide relief from the great economic distress that was caused due to the worldwide corona pandemic. Out of the proposals to improve carrying on business was the proposal to make amendments in 19 different acts with intent to decriminalise various petty economic crimes, out of these acts and section one of the most crucial is section 138 of the Negotiable Instruments Act, 1881. These actions have been proposed with taking into view the long term impacts of such actions being taken and how they would ease the overall economic system of the country. 

Firstly, talking about the said act, Negotiable Instruments Act 1881 was enacted with a view of regulating various types of negotiable instruments such as Bills of Exchange, Promissory notes and Cheques. Negotiable instruments act as the backbone of the business model of the country by way of easing carrying out of business, providing a feasible alternative to cash transactions being carried out. 

Further on talking about the section discussed, section 138 lays down the punishment for the dishonour of cheques. The government of India by way of “Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988”2which came into effect in the year 1989 introduced section 138 paving the way for the dishonour of cheque being treated as a criminal offence. The objective behind introducing this section was to promote the use of cheques by increasing the trust people have over them and make cheques more credible. In case a cheque is being dishonoured either due to insufficiency of funds or due to any of the other prescribed reasons under the act, the person at default can be held guilty and be liable for “imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or both”. 

Why this attempt of decriminalizing section 138 

According to the 213th Report of the Law Commission of India(2008) on the subject of “Fast Track Magisterial Courts for Dishonoured Cheque Cases” made an observation that almost 38 lakh cases of cheque dishonour were still pending within various courts of the country as of then, further out of the over 7 lakh cases pending with the Delhi courts on a magisterial level almost 5 lakh were only of cheques dishonour alone. 

Keeping this fact in view and also the present image of the Indian market as one which involves a lot of legislative barriers the proposal was put forward is to escalate the flow of foreign investment into our country and pave way for a further boost in the economy of India especially during these trying times when each country is looking for as many options as possible. 

As discussed above also the intention behind introducing section 138 in the act was not more on the punishment aspect of the section but to increase the trust and reliability quotient of cheques and to reduce the nation's dependency on currency notes thus the punishment was there to assure the acceptor of the cheque that in case there is a default the issuer can be held liable and thus he would carry out his duty with utmost care and not try to deceive the acceptor. 

Also, the reason behind regarding the punishment for the dishonour of cheque as petty is because any person aggrieved due to dishonour can also file a criminal complaint u/s 420 (Cheating) of the Indian Penal Code, 1860, so there seems no need to have another penal provision for the same.

 Also, another section of the Negotiable Instruments Act is section 147 which makes the offence section 138 compoundable, which essentially means that the parties involved in the case of dishonour of cheque can mutually reach an agreement and can even drop the charges put on the accused if a settlement is reached upon.  

The intent behind the introduction of Section 138 of the NI Act was to increase the credibility of an instrument and help further in the development of trade and commerce within India and even beyond it and plays a crucial role in maintaining the trust people have on a negotiable instrument and also reduces the scope of cheating and fraud. 

While relating to provisions under different laws such as fraud there is an essential factor of mens-rea that needs to involve in the crime so only sticking to the conventional provisions would involve always following the mens-rea factor and that can derive some bonafide complainants from getting an adequate judgement in their favour because not all dishonour is due to mens-rea there are other factors also involved under it but they would not be considered if no special law is there. The aspect of strict liability plays a detrimental role in deciding the effectiveness of provisions. 

In a situation wherein cheque dishonour is no more a criminal offence there is an inherent risk of an increase in the number of incidents involving fraud and cheating. The criminal liability associated with the dishonour of cheque is what keeps people very alert and prudent in their dealing involving cheques and make a genuine effort to make sure the cheque does not get dishonoured and in the absence of it that effort will be gone and the burden will shift onto the acceptor who will have to go through a great deal of ordeals to make sure the issuer of the cheque will not make default in his payments. 

It cannot be denied that section 138 brings along with it a huge burden of litigation upon the judiciary from which the judiciary seems unable to tackle with a humungous number of cases being filed for the same but that does not mean there shouldn’t be any legislation on it just because cases are being filed under it. This would essentially derive a genuine plaintiff the right to get speedy justice and also this affects the issuer of cheques as it would drastically reduce the acceptance of negotiable instruments in the day to day life and hence affecting the one’s who use the negotiable instrument in their day to day life extensively to meet their daily economic and trade-related activities. 

Looking at the economic aspect and its effect on one’s own pocket it can be noted that a proceeding initiated U/s 138 attracts somewhat lower court fees when compared against civil proceedings. If the decriminalisation was to happen of the dishonour of cheque, it would make the holder of cheques compelled to approach civil courts in order to get due to justice. This will in turn work against one of the intended motives of decriminalisation as it would, in turn, increase the load of civil courts much more and the proceedings would also take up more time. This would also mean taking away the right of an aggrieved holder to recover up to 20% interim compensation of the total cheque amount which can be recovered right at the initial stage of trial u/s. 143A of the NI Act. 

If not decriminalization then what method can be adopted? 

While the arguments put forward till now are very crucial and hold an important value regarding the decriminalisation of section 138 of the NI act but it can also not be denied that there is some serious scope of improvement in the act and the section keeping in view the staggering number of the pending cases in India regarding the same topic of dishonour of cheque and with no respite, in view, there needs to be some serious level planning and coordination at different levels in order to find a solution to this problem which is bothering the justice delivery system for a very long time. 

Some of the alternatives to decriminalisation can be:- 

Setting up of a framework that provides for proportional punishment according to the degree of wrong committed and not set a single rule for one and all thus forcing even minor wrongdoers to the same level of punishment. 

There should be scope and provisions for arbitration under the negotiable instruments act as an amicable settlement can be given a try before directly jumping on to initiation of legal proceeding saving time and effort of everyone involved and also saving the judiciary from being unnecessarily being over-burdened or even opt for mediation as a remedy for petty amounts of default. The Delhi High Court in the decision of “Dayawati v. Yogesh Kumar Gosain3” had made a suggestion regarding the use of “Arbitration, Mediation and Conciliation in cases of dishonour of cheques to ease the backlog of cases”. The legislature can prepare a proper framework and issue guidelines in this regard this will not only ensure faster delivery of justice but also greatly reduce the number of cases pending with the courts. 


There is also the scope of inserting certain administrative penalties and punishments such as an embargo on the issue of cheques for a certain period of time and scope for increase in the time frame of embargo depending upon the number and intensity of the default committed. 


Whenever a change is proposed or suggested both its good and bad need to be weighed, in view of the “ease of doing business” motto forwarded by the Government of India, the move suggested by the Ministry of Finance under the directive of the Union government can have a detrimental effect on the already broken trade and commerce structure. This can act as the point of inducing the sentiment of loss of means of recovering their hard-earned money both from the Indian as well as their foreign counterparts investing in a business. The amendment can bring in a factor of anarchy into the law and related businesses. 

This would change the mood of the market and the reliance on cheques would be lost and the dependency on cash will further increase and an inherent problem with cash transactions is the inability to track down cash from one hand to another increasing the scope of corruption and black money being used more openly this move can break down the already broken system even further. 

However, while discussing this the other aspect should not be overlooked the move to pass the proposal to decriminalise section 138 was not made in a day and was the result of years of study and research and has many positive effects such as the increased interest in foreign investors in the Indian market due to lesser barriers and restrictions being imposed on them and lack of constant fear of getting entwined in a legal battle over a very petty sum.



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