Why are Negotiable Instruments under section 138 criminally penalized though the transaction is civil?


Negotiable Instruments, the term itself defines its characteristics and performance, in general, in layman’s language we can understand it as an instrument which is used for negotiation between two parties to such transaction or to any third party; here the party to the transaction can be a person or association of persons or any-body corporate, indirectly connected to the transaction. Now, section 13[1] says in simple terms that “any promissory note, bill of exchange or cheque payable either to order or to bearer which is a form of replacement to monetary cash which is used to pay such payee or payees”[2].

ABOUT Negotiable Instruments  

Negotiable Instruments are widely used in commercial transactions as a mode of payment. A negotiable instrument is a written document that promises to pay a certain sum of money to a designated person or the bearer of the document. In the purview of the Negotiable instruments act, 1881 provides the legal framework for the rules and enforcement of these instruments in India. The act defines the different types of negotiable instruments and lays down the rules governing their transfer payment and dishonour, one of the most important provisions of the Act’s section 138 which is the main key highlight or the focus of this blog to lay down and examine why negotiable instruments under section 138[3] are criminally penalised though the transaction is civil in nature.

NATURE of Negotiable Instruments

As stated above, negotiating instruments are essentially commercial documents that facilitate transferring money from one party to another. They are used as a substitute for cash and are a convenient and secure way of making payments. Some of the most common types of negotiable instruments are cheques, promissory notes, and bills of exchange. All these instruments are governed by the rules laid down in the negotiable instruments Act, 1881.

In general understanding Negotiable Instruments have a fixed nature of their usage, cheques are the most widely used negotiable instruments in India. They are used to transfer funds from one bank account to another or to be withdrawn as a form of cash. A check is a written order from the account holder to the bank, directing it to pay a specified sum of money to the person named on the cheque or to the pier of the instrument. The person who issues a cheque is known as the drawer, the person in whose favour the cheque is drawn is the payee, and the bank on which the cheque is drawn is the drawee[4].

Promissory notes and bills of exchange are similar projects in that they are also used to transfer money from one party to another. A promissory note is a written promise by one party to pay a certain sum of money to another party at a specified time. A bill of exchange is a written order which is made at the time of demand by one party to another party to pay a certain sum of money at a specified time[5].

Section 138[6] – A Harsh Deterrence or a Strict Remedy

When a person issues a cheque to another person, it is expected that there are sufficient funds in the account to cover the amount specified in the cheque. If the cheque is presented for payment and there are insufficient funds in the account, the bank will return the check as “dishonoured”. This is considered a serious offence, as it can lead to financial losses for the person who was expecting payment. Now, you must have a question that the nature of the transaction is civil and that the other party(payee) has suffered from the civil wrong. The person who has been harmed can file a civil suit or summary of the suit[7] which is a speedy process yet not effective in recovery (here effectiveness can be measured in many parameters but some major faults are lengthy and expensive proceedings, no guarantee of recovery of the full amount), the same cannot be said under the provision of Section 138[8] as to address this issue the NI Act provides for criminal penalties for dishonouring a check.

The rationale behind criminalising the dishonouring of a cheque is to deter people from issuing cheques that they know cannot be honoured. If there were no criminal penalties, people could issue cheques with impunity, knowing that the worst that could happen is that they would be sued in civil court. This would encourage dishonest behaviour and undermine the trust that is essential for a healthy banking system.

Penalties under Section 138[9] are severe in nature as the person who is issuing cheques is essentially making a promise to pay, if this promise is broken, it can have serious consequences for the person who was expecting payment. Imposing criminal penalties as a consequence of such failed actions will help to ensure that people will honour their promises and that the financial system remains stable and trustworthy, criminalising the dishonouring of a cheque may seem harsh, but it is important to remember that the financial system depends on trust and law.


There are some insights of these sections which when thoroughly examined can be breakdown into essentials which makes Section 138[10] different and more reliable in analysis with Order 37[11] of CPC, here are some reasons[12] :

  1. Speedy Remedy: Section 138[13] provides for a speedy remedy for the payee as it is a criminal offence. Once a complaint is filed, the case proceeds quickly in court, and the accused can be punished with imprisonment and/or a fine if found guilty. On the other hand, civil suits can take a long time to resolve, and the payee may not get the desired outcome due to various legal hurdles and procedures[14].
  2. Presumption of Dishonour: Section 138[15] provides for a presumption of dishonour, which means that the court assumes that the cheque was dishonoured, and the burden of proof[16] shifts to the drawer to prove otherwise. In civil suits, the burden of proof lies with a payee[17], and they must prove that the cheque was dishonoured and that the drawer is liable for the amount due.
  3. Strict Liability: Section 138[18] imposes strict liability on the drawer, which means that they are liable for the amount due even if they had no intention of dishonouring the cheque. In civil suits, the payee must prove[19] that the drawer had the intention to cheat or defraud them.
  4. Criminal Penalty: Section 138[20] provides for a criminal penalty, which can act as a deterrent to prevent the drawer from issuing cheques without sufficient funds in their account. In civil suits, the payee can only recover the amount due, and there is no penalty for the drawer.
  5. Limited Defenses: Section 138[21] provides for limited defences that the drawer can use to escape liability, such as lack of notice of dishonour or the existence of the dispute. In civil suits, the drawer may have more defences[22] available to them, such as mistakes or coercion.


In conclusion, civil suits can provide some relief to the payee in case of dishonour of cheques, Section 138[23] provides a more effective and speedy remedy with a criminal penalty for the drawer, which can act as a deterrent to prevent future dishonours. So concluding factor can be determined on a case-to-case basis and altogether depends upon, the type of transaction and the amount and duration of default which is the deciding factor, as the different situations can attract deferent statutes and violations and its implications over the accused varies.

Author(s) Name: Ashendra Mani Pandey (Dr. Shakuntala Misra National Rehabilitation)


[1] Negotiable Instruments Act 1881, s 13

[2] Hiten P. Dalal v Bratindranath Banerjee (2001) CC No. 526910/2016

[3] Negotiable Instruments Act 1881, s 138

[4] Negotiable Instruments Act 1881, s 13

[5]Sony Kulshrestha, et al., ‘Implication of Other Legislations on Negotiable Instruments: A Study in the Light of Negotiable Instruments Act, 1881’ (2020) 17 (9) PJAEE <http://archives.palarch.nl/index.php/jae/article/view/5175/5099> accessed 6th March 2023

[6] Negotiable Instruments Act 1881, s 138

[7] Civil Procedure Code 1908, Ord. XXXVII

[8] Negotiable Instruments Act 1881, s 138

[9] Ibid

[10] Ibid

[11]Civil Procedure Code 1908, Ord. XXXVII

[12] Shivam Goel, ‘The Negotiable Instruments Act, 1881: Critical Analysis’ (SSRN E-Journal, 18 November 2016 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2867355> accessed 6th March 2023

[13] Negotiable Instruments Act 1881, s 138

[14] Civil Procedure Code 1908, Ord. XXXVII

[15] Negotiable Instruments Act 1881, s 138

[16] K.S. Ranganatha v Vittal Shetty (2011) Criminal Appeal No. 1860/2011

[17] Sony Kulshrestha (n 5)

[18] Negotiable Instruments Act 1881, s 138

[19] Civil Procedure Code 1908, Ord XXXVII

[20] Negotiable Instruments Act 1881, s 138

[21] Ibid

[22] Civil Procedure Code 1908, Ord XXXVII r 2(7)

[23] Negotiable Instruments Act 1881, s 138

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