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Nishtha Agarwal, IV year of B.B.A.,LL.B.(Hons.), Law College Dehradun faculty of Uttaranchal University


With the escalation of sleazy practices like robbery by marauding robbers while performing the commercial transaction in terms of money there came into existence the idea of exchange through mercantile instruments which prompted the British Government to pass the Negotiable Instrument Act, 1881 which aimed to provide the legal framework for payments through the negotiable instrument. With the commencement of this act the Indian economy witness rapid increment of confidence of public and culture of usage in cheques transactions, however, over time the issue of the cheque being dishonoured has been increasing at an alarming pace which led to an introduction of an amendment to act in 1988 to criminalize drawing of cheques without sufficient balance in the bank account with imprisonment which may extend to 2 years or with the monetary penalty or with both.

It was expected that the problem of dishonour of cheques shall be reduced to a great extent as the people shall have the apprehension of getting into trouble and suffer penal consequences. This somehow enhanced the credibility of cheques, however, we find that the problem has not been solved to the extent it was expected and there has been a flood of litigation resulting from the amended act. As per the 213th law commission report, almost 20% of the pending litigation relates to dispute u/s 138. Considering this The NI (amendment) Act 2018 was passed to deal with the enormous problem of pending cases by providing summary trial, and to provide interim compensation to drawee up to 20% of the cheque amount.

Despite no. of amendments has been made to address the problem related to dishonour and the myriad court cases resulting from it. The cases are still on the path to expand extensively. Having confronted this Sisyphean task there seems the need to bring forth the proposal of decriminalization and a mechanism for pre-litigation settlement to help in improving business sentiments and unclogging court processes.


The word cheque means a negotiable instrument that contains an unconditional order to the bank to pay the mentioned sum of money to the person whose name is mentioned in the instrument from the drawer’s account.

“A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.”[1]

Black’s Law Dictionary defines cheque as a draft drawn upon a bank and payable on demand signed by the maker or drawer, containing an unconditional promise to pay a sum certain in money to the order of the payee.[2]


Dishonour of cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same.[3]

Essentials for an action under section 138

Before moving further it is essential to discuss the conditions precedent under 138-142 that criminalized cheque bouncing:

  • The cheque ought to have been presented to the bank within six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

  • The payee or the holder in due course of the cheque, as the case may be, ought to make a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid on grounds of insufficient balance or

  • The drawer of such a cheque should have failed to make payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice.

Fulfilment of those three conditions constitutes an offence Under Section 138 and it can then be said that an offence under the said section has been committed by the person issuing the cheque.[4] The Act provides for the sentence which may extend to 2 years or fine which may top up to twice the amount or with both.

In the case of Tomy Jacob Kattikaran vs. Thomas Manjaly[5] Supreme Court has held that if it was established that the appellant did not serve a notice on the drawer within the period prescribed under Section 138 of the Act, the acquittal of the drawer is justified.


A new chapter XVII was introduced by Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 to former British Act of 1881[6] contemplating the recommendations given in the report of the committee on banking laws, headed by Dr. Rajammanar to provide for criminal liability in instance of dishonour of cheque to inculcate faith in banking instrument and to increase the credibility of same.[7] It was a good endeavour taken by the legislature to foster banking operations but the legislature should also have considered the commercial realities prevailing in India with overburdened courts and lack of basic infrastructure to deal with such cases. To overcome the issue of overburdened and prolonged court processes, Amendment Act, 2018 came into force which provides for interim compensation not exceeding 20% of the cheque amount within 60 days either in summary trial or a summon case. This also expedites docket burden and frivolous litigation and thereby arises a need for further consideration.



Section 406 Criminal Breach of Trust and section 420 Cheating of Indian Penal Code, prosecute the drawer of the cheque in case of willful dishonour of cheque by him. Supreme Court observed that proceedings under both IPC and Negotiable Instrument Act can be initiated at the same time and principle of double jeopardy does not apply to it as offences under both the acts are of different nature.[8] This makes it clear that provision for decriminalizing the offence under NI Act would not affect the validity of offence under IPC. Provisions under IPC will subsist and in case the cheque is drawn with malice intent the drawer has the right to sue the drawee for criminal breach of trust or cheating.


Alternative Dispute Resolution is the official process of resolving the dispute outside the judicial system through arbitration, mediation or conciliation. It provides an alternative to parties to settle their dispute quickly with low cost, flexibility, confidentiality, and greater autonomy. The object for enacting penal liability under Section 138 of the Act makes it clear that the parliament intended that honest drawer should not suffer at the machination of dishonest drawee.[9] But With the ever-growing institution of N.I. cases there develops the need for pre-litigation settlement in these cases.[10] Although, section 143 provides for speedy and summary trial, the expression "as far as possible" in Section 143 leaves sufficient flexibility for the Magistrate so as not to affect the quick flow of the trial process.[11] Therefore, it became requisite to entrust the offences of criminal compoundable nature to arbitration, mediation or conciliation[12] along with section 89 of the Code of Civil Procedure.


On 8 June 2020, our Finance Minister “Shri Nirmala Sitaraman” proposed to decriminalize various minor offences including offence under sec. 138 deliberately to provide ease of doing business in India. This not only Unclog the court system and prisons but also provide relief to foreign investors for whom criminal liability for the economic offence is quite a big concern because of prolonging court process in resolving disputes and fetch foreign investments in India to promote “Make in India project” if implemented appropriately. Investors have fear of indulging in criminal implications for small and petty cases which create hurdle in the tranquillity of accelerating business. Recently, Government of India launched 2 programs named as “Sabka Sath, Sabka Vikas and Sabka Vishwas” and “Aatm Nirbhar Apna Bharat” to support local and rural business and exhorted to get “Vocal for Local”. This step of decriminalization of petty offences will expedite the implementation of these programs on the ground level.


Altogether I would suggest decriminalizing the offence provided under NI Act as countries like Australia, United Kingdom, Singapore and France etc. which are top-rated counties in doing business also imposes civil liability only and to make provisions for compulsory arbitration in the matter of cheque bounce with appropriate amendments to avoid unusual delay in court process which trembles the faith, trust and confidence of people in the judicial system and also penalizing such petty offences will create an unwanted burden on courts and judges which result in delay and, delay in the trial by itself constitutes a denial of justice as the speedy trial is the essence of justice.[13]

At last, I would like to culminate by saying that, it is in the interest of the judicial system and in ease of doing business that these reforms are bought as expeditiously as possible. Surely it will prove helpful if implemented effectively. Although it is probably going to be difficult to implement such a great step we know amid difficulty, there lies an opportunity.

[1] Section 6 of the Negotiable Instrument Act, 1881.

[2] 5 th Edn., at 215.

[3] Section 92 of Negotiable Instrument Act, 1881.

[4] MSR Leathers vs. S. Palaniappan and Ors., AIR 2014 SC 642.

[5] AIR 1998 SC 366.

[6] Negotiable Instrument Act, 1881

[7] Goaplast Pvt. Ltd. v. Shri Chico Ursula D'Souza and another, AIR 2003 SC 2035.

[8] Sangeetaben Mahendrabhai Patel Vs. State of Gujarat, AIR2012SC2844.

[9] Hashmikant M. Sheth vs. State of Gujarat, 2004CriLJ3628.

[10] Makwana Mangaldas Tulsidas vs. The State of Gujarat and Ors., decided on: 05.03.2020

[11] Meters and Instruments Private Limited and Ors. vs. Kanchan Mehta, AIR2017SC4594

[12] Dayawati Vs. Yogesh Kumar Gosain 2018ALLMR(Cri)161

[13] Hussainara Khatun v. State of Bihar, AIR 1979 SC 1360


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