Scroll Top



The Negotiable Instruments Act of 1881 was designed to establish regulations governing promissory notes, bills of exchange, and checks, which were new financial instruments in India at the time. Despite the fact that promissory notes and bills of exchange have become obsolete, checks remain the favoured method of conducting financial transactions and have therefore become indispensable to the operation of the capitalist world’s economic superstructure. Sections 138 through 142 of the Act are found in Chapter XVII. These are criminal provisions added to the Act by the Banking, Public Financial Institutions, and Negotiable Instruments Laws (Amendment) Act, 1988, in order to instil trust in the legitimacy of conducting business on negotiable instruments and the efficacy of banking operations. Section 138 of the Act establishes a statutory crime of cheque dishonour. If a cheque is dishonoured due to a lack of money in the drawer’s account or because it exceeds the amount scheduled to be paid from that account, the drawer faces up to two years in jail or a fine up to double the value of the cheque or both.


Dishonour cases would be lodged in civil courts as cheating cases under section 420 Indian Penal Code and related provisions, which would be a lengthy and costly procedure with insufficient relief at the time of need, as opposed to the summary trials currently used in such cases, which are comparatively less time consuming and cost-effective. According to the bench, which also included Justices Vikram Nath and B V Nagarathna, the pending court proceedings under section 138 of the Negotiable Instruments Act, as well as the numerous complaints in which a cause of action arising from a single transaction is litigated, have hampered the ease of doing business in India.


The Indian government adopted section 138 of the “Banking, Public Financial Institutions, and Negotiable Instruments Laws (Amendment) Act, 1988″ in 1989, making cheque dishonour a criminal offence. The goal of including this part was to encourage individuals to utilize checks by improving their faith in them and making them more credible. This amendment was introduced to develop the trust of the people and promote the use of documents such as promissory notes, bills of exchange, etc. in order to increase cashless transactions.


  1. It facilitates commercial transactions, resulting in increased investment in the economy.
  2. Criminal sanctions, such as detention for small offences, function as a deterrent and are seen as one of the key factors influencing business emotions and limiting investment.
  3. Uncertainty in legal proceedings and the length of time it takes for a case to be resolved in court raises the cost of legal fees and time.
  4. Assists in the revival of economic growth and the improvement of the judicial system as a COVID 19 response plan.
  5. It will be effective in minimizing court backlogs and directing courts’ attention to key outstanding matters.


  1. Because determining the distinction between fraud and simple ignorance is subjective, disregarding the fraudulent objectives of the defaulter will erode market trust.
  2. Cheques, which are now utilized as a form of payment in the majority of financial transactions, will soon lose their sanctity and credibility and will be replaced by cash and other forms of payment, resulting in a failure of the government’s cashless economy initiative.
  3. People employ post-dated cheques (PDCs) against purchases made from MSME’s and other business entities, according to current financial trends; nonetheless, this shift will function as a barrier in many commercial transactions.
  4. Businesses and vendors will cease accepting checks as payment, fearful that they may be returned unpaid, putting them in a financial bind.
  5. The stigma of the company would be destroyed, which can certainly be harmful. The reputation of the company will be tarnished, and the business will be negatively affected.
  6. There will be a significant increase in the number of scams and losses suffered as a result of non-payment, which will have a macroeconomic impact, pushing the country further into debt and financial distress.
  7. Such changes may have a negative influence on the banking industry.
  8. The bearer of a dishonoured check can still pursue the defaulter under the Indian Penal Code’s Sections 406 (Criminal Breach of Trust) and 420 (Cheating), as the IPC and the NI Act, 1881 are separate and distinct remedies. As a result, the goal of decriminalizing cheque dishonour will be defeated.
  9. Cheques were regarded as a safe means of payment due to the severity of the penalties. Now, retrieving genuine corporate debts and private loans will be difficult, and this will function as a barrier rather than supporting entrepreneurship.
  10. The proposal of decriminalization conflicts with provisions of Section 143A and Section 148 of the Negotiable Instrument Legislation, 1881, which were recently enacted to offer a remedy to complaints, and weakening the said act is unjustified and self-contradictory on the other hand.
  11. Decriminalization would promote a cash-based economy rather than a cashless economy, resulting in a rise in black money.

Given the above serious consequences of decriminalizing check bounces, the government must seek out easier and better ways to deal with these issues in order to strike a balance between relieving businesses of time-consuming procedures, relieving courts of pending cases, and ensuring payment security at the same time.


It can be said that section 138 only targets those unscrupulous drawers and not honest persons and therefore there doesn’t exist a need to decriminalize it.

  1. A cheque bounce can also be discouraged and prevented by lowering the defaulter’s CIBIL score and denying him access to credit cards and loans.
  2. Banks can also form a vigilance committee to review bulk cheque dishonours and take appropriate action for restitution and settlement, resulting in faster recovery and less bother.
  3. The formation of “One Day Courts” can deal with minor offences like bounced checks. In such cases, a judgment is made within 24 hours. This would serve as a protection against time-consuming and costly judicial actions.
  4. Detention of some bounced cheques (e.g., for rent) or cheques written for small business transactions or cheques drawn by small and medium firms should be amended. In such circumstances, only a penalty should be issued because the primary goal is to recoup the money. In the United Arab Emirates, for example, the drawers of a bounced check of AED 200,000 (or less) might be penalized directly by the Dubai Public Prosecution without having to go to court. There are no detentions and only a penalty is enforced.
  5. Introducing arbitration or mediation as a way of settlement between the parties would reduce the burden of the courts, and the recovery of the money would be speedy. This option would be feasible for many people to avoid filing suits due to the fear of court proceedings.

Nevertheless, it has been predicted, and properly so, that removing criminal culpability for the conduct of the act would geometrically raise the odds of no recovery and, by extension, non-payment of dues, posing a danger to the country’s public security and judicial system. It must also be comprehended that a bank’s cheque dishonour causes irreparable loss both to the payee and to the business environment in the country and abroad, and many businesses and their operations are affected and disrupted as a result, resulting in both irreparable loss and setback as the entire reliability of the business deal is harmed both within and outside the country.


Since the criminal responsibility for check dishonour has been removed, there has been continual debate over whether this was the proper decision. The Indian legal system has been confronted with fresh issues on a regular basis and has always met them front-on. On the one hand, it has been suggested that the decriminalized clause would provide quick justice and would inspire faith and respect for the rule of law among the general public. As the custodian of society’s fundamental rights, the judiciary safeguards the right to a fair and timely trial, and civil conflicts for check dishonour instances would aid in accomplishing this goal. On the other hand, if Section 138 is decriminalized, it has the potential to remove the current dread of payment that has been instilled as a result of the criminal responsibility imposed on the drawer of the check, as well as promote additional non-payment of dues. It is critical for the government and concerned ministries to maintain public confidence in the country’s banking operations, which can only be accomplished if the government shows seriousness and is able to provide appropriate mechanisms for the timely resolution of such disputes, as well as adequate punishment for crimes committed maliciously and with mala fide intent by the person in question.

Author(s) Name: Shreya Manoj Kasale (Asmita College of Law, Mumbai University)

Related Posts