By Aayush Akar and Aarushi Prabhakar, 3rd Year Student, National Law University Odisha


On 8th June 2020, the Government of India vide Ministry of Finance released a notification for the decriminalization of 39 economic offences including the offence of dishonour of cheque with an aim of achieving ‘Sabka Saath, Sabka Vikas and Sabka Vishwas’.[1] The chief reason for the decriminalization of cheque bounce was to increase the investment in the economy, facilitate ease of doing business and unclog cases in courts. Decriminalization of section 138 negates the objective and purpose of the section. The said decriminalization has also been opposed by Bar Council of Delhi, Maharashtra and Goa on the grounds that there would be no fear in the minds of people who would continue to defraud and cheat the innocent. Also, the initiative doesn’t go with the line of reasoning given by the government therefore it will have an opposite impact on the economy.[2] This piece of writing is an attempt to discuss section 138 and the reasons for non-decriminalization of dishonour of cheques. 

Conspectus of Section 138

Initially, the law on the dishonour of cheque was not a criminal offence but a civil offence. However, it is only after the 1988 amendment that dishonour of cheque was criminalised by the inclusion of chapter XVII in The Negotiable Instrument Act, 1888 with the punishment up to 1 year. Furthermore, the legislature enhanced the maximum imprisonment from 1 to 2 years through the Amending Act 55 of 2002 with the introduction of “Negotiable Instruments (Amendment) Bill, 2001”. Bill was based on the recommendation made by the working group which was further referred to the standing committee. The report was submitted in November 2001 to Lok Sabha by the Standing Committee for the enhancement of punishment from 1 to 2 years.[3]

Chapter XVII of The Negotiable Instrument Act, 1881 provides for penalties in cases of dishonour of cheque due to insufficient funds (Section 138-147). The section ensures that the cheque is honoured and not used as a tool of dishonesty. If a cheque is dishonoured, the person is provided with a chance to pay the amount by the issuance of a notice.  The person faces criminal liability punishable with imprisonment up to 2 years or fine extendable up to twice the amount of cheque or both if the person is still unable to pay the amount. Consent of both the parties is required to make the offence compoundable and no permission is required from the court. The accused can be discharged even if there is no consent if the court is of the opinion that the complainant has been compensated. The offence under this section is a non-cognizable and a bailable offence with the section imposing both civil as well as criminal liability.[4]

Section 138 of the Act is a mechanism to facilitate a more holistic means of dealing with defaulters as payment by cheques is among the most reliable methods of payment.[5] Different decisions have been given by the courts underlining the significance of Section 138 and describing the intent of the Act. In the case of M/s. Dalmia Cement (Bharat) Ltd. v. M/s. Galaxy Traders and Agencies Ltd. and Others[6], the Apex Court had observed that the legislature inserted section 138 with a stated intent to make a special provision by adding a strict liability as far as the cheque is concerned as a negotiable instrument. Thus the laws relating to the Act are supposed to be read in the light of the purposes it aims to accomplish despite there being a deviation from the general law and the mechanism given for addressing the grievances to the complainants.

Besides, the Supreme Court emphasized on criminal liability in the case of Indian Bank Association and others v. Union of India and Others[7] where it mentioned in case of dishonour of cheque, the person will be given the opportunity to pay the cheque amount after issuing him notice and in case of failure, there will be the criminal consequence. The same Court in case of Goa Plast (P) Ltd v. Chico Ursula D’Souza[8] mentioned that the intent of Section 138 is to facilitate the use of cheques in commercial transactions smoothly. Nonetheless, dishonour of cheques causes the payee irreparable harm, damage and annoyance, culminating in the real mishap of the exchanges in and out of the nation. Furthermore, the Bombay High Court emphasized that the legislative intent to insert Section 138 is to avert the perversion of Indian Banking System in the case of Rajesh Laxmichand Udeshi v. Pravin Hiralal[9].

In the recent judgement of Makwana Mangaldas Tulsidas v State of Gujarat[10], Supreme Court stated the statutory aim behind Section 138 that is to maintain confidence in the effectiveness of banking activities and integrity in making transactions on cheques. It was intended to provide a strong criminal redress to dissuade the high rate of dishonour of cheques and to ensure that the complainant was compensated.  Subsequent amendments to the Act and pronouncements of this Court indicate that it was often interpreted that such proceedings should be disposed of promptly in order to maintain the object of criminalization of the act.

Why Decriminalization is Erroneous

Following are the reasons as to why decriminalisation of cheque is a step in the wrong direction and not desirable:-

  • Decriminalisation will further clog the courts with cases since the strain would shift from criminal courts to civil courts. Therefore, the problem of pendency will persist and only transfer of burden from one court to another will take place.
  • In civil cases, court fees payable at the time of filing of the case is much more than that of criminal cases. Therefore, the alternative remedy that is seeking recovery from civil courts will be expensive as well as time-consuming.
  •  Government’s campaign of the cashless economy would misfire since cheques would lose their credibility and sanctity thereby being replaced by cash or other modes of payment.
  • It cannot be said that dishonour of cheque is a minor offence lacking the element of mens rea. Firstly, there is an implied and express promise that the cheque would be honoured when a drawer issues a cheque to the payee. Secondly, the drawer gets two chances for payment of the amount as an initial payment and if that initial payment is dishonoured, the person is provided with a chance to pay the amount by the issuance of notice. Non-payment during the second prospect of payment would clearly indicate the presence of mens rea and the intent to commit fraud and criminal breach of trust.
  • There would be an increase in the number of frauds due to non-payment. Subsequently, leading to a debt spiral and financial depression.
  • Section 138 provides for a shield for honest drawers. The offence is said to be committed only after the expiry of 15 days of notice which is issued to the drawer upon the dishonour of cheque. Hence, the drawer is provided with a 15-day bracket to pay the amount. Furthermore, the drawer can avoid further prosecution and settle at any stage due to the compoundable nature of the offence under section 147 of the Negotiable Instrument Act.[11]

A Way Forward

It is pivotal to understand that decriminalisation will neither solve the problem of clogging of courts nor will facilitate ease of doing business or increase the investment in the economy. Therefore, following are the suggestions as an alternative to decriminalisation which the government may consider for the benefit of all:-

  • A monetary limit can be fixed for invoking criminal prosecution. It will ensure that people involved in larger transactions are safeguarded by an effectual criminal remedy, thereby preserving the original legislative purpose and also, reducing the burden on criminal courts by removing cases involving smaller transactions, thus people involved in the smaller transaction would not have to face any criminal liability.
  • The judicial process could be made more effective and efficient by increasing the number of judges, the establishment of special courts etc.
  • In France, upon dishonouring of cheque, the defaulter is asked by the bank to pay an amount called as service charge. The names of frequent defaulters are added in the register known as the Fichier Central de cheque by the bank[12]. Additionally, defaulters are banned from the bank for a certain period of time. This acts as an effectual deterrence, a similar approach could be followed in India.
  • Parties should be encouraged to use alternative dispute resolution for settling of cases in the form of arbitration, mediation and conciliation.


The notification released by the Government of India vide Ministry of Finance is a typical example of good intentions gone bad. Decriminalisation of dishonour of cheque would breakdown an already broken economy because other modes of payment such as cash, online banking etc. would be preferred over cheques. Though the government took this initiative which may hold the best interest of the economy at large but the feasibility and possible effects of the same are not in consonance with the intention. Therefore, the said initiative would have a negative impact on the economy which makes us ponder if we are stepping in the right direction?

[1] ‘Decriminalisation Of Cheque Bouncing – Criminal Law – India’ <; accessed 28 August 2020.

[2] ‘Decriminalization of Minor Economic Offences: A Step towards “Sabka Saath, Sabka Vikas and Sabka Vishwas” – Obhan & Associates’ <; accessed 28 August 2020.

[3] ‘Decriminalisation Of Cheque Bouncing – Criminal Law – India’ (n 1).

[4] Indian Bank Association & Ors v Union of India & Anr Writ Petition (Civil) No.18 Of 2013.

[5] Negotiable Instrument Act 1881, s 138.

[6] M/s. Dalmia Cement (Bharat) Ltd. v. M/s. Galaxy Traders and Agencies Ltd. and Others Appeal (crl.) 957  of  2000.

[7] Indian Bank Association and others v. Union of India and Others Writ Petition (civil) no.18 of 2013.

[8] Goa Plast (P) Ltd v. Chico Ursula D’Souza Appeal (crl.)  1968 of 1996.

[9] Rajesh Laxmichand Udeshi v. Pravin Hiralal Appeal (L) No. 202 of 2012.

[10] Makwana Mangaldas Tulsidas v State of Gujarat Special Leave Petition (Criminal) No. 5464 of 2016.

[11] ‘Decriminalising the Offence of Dishonour Of Cheque: Why Not Desirable? – Finance and Banking – India’ <; accessed 30 August 2020.

[12] ‘Payment, Clearing and Settlement Systems in France’ <; accessed 30 August 2020.


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