Decriminalization of Section 138 N.I. Act

Decriminalization of Section 138 N.I. Act

Decriminalization of Section 138 N.I. Act

Today, we are going to discuss the recent amendment proposed by the Central Government regarding decriminalizing of the offences relating to the bouncing of cheques i.e Decriminalization of Section 138 N.I. Act. As we all know that the Central Government has recently proposed an amendment regarding Section 138 of the Negotiable Instruments Act, 1881 and has sought objections and suggestions from citizens on its proposal. In my opinion this proposed amendment will evoke a passionate debate and will also create divided opinions.

To understand the offence under Section 138, N.I. Act, one must understand what cheque is. A cheque is defined as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise then on demand. Section 138 penalizes the dishonor of cheque but to become an offence the following ingredients must be fulfilled:

  1. Drawing of the cheque.
  2. Presentation of the cheque to the bank.
  3. Return of the cheque unpaid by the drawee bank.
  4. Issuance of notice in writing to the drawer of the cheque demanding payment of the cheque amount.
  5. Failure of the drawer to make the payment within 15 days of receipt of the notice.

Now, let’s understand the concept of bouncing of cheques. A cheque bounces when an unpaid cheque is returned by the bank. As soon as the cheque is dishonored, it casts a criminal liability under Section 138 of the Act which is punishable with imprisonment which may extend to 2 years or with fine which may extend to twice the amount of the cheque or both.

There is a contrast in the situation of other countries where people are unable to pay their debt. In most of the civilized countries, the idea of sending people to prison due to their inability to discharge their contractual debt has been given away, for example the United Kingdom prohibited imprisoning people for their failure to repay their debts as far back as 1869 when it enacted the Debtor’s Act. The United States banned debtors’ prison as far back as 1833. The idea behind abolishing debtors’ prison was that the society will have no benefit by imprisoning a person who is unable to pay the debts even after all his assets have been possessed by the creditors.

The reason behind abolishing the law seemed to be a logical one as sending a person behind bars who is still under a debt will not benefit the society or a person whose debt he is carrying. So instead of sending that person to prison he should be engaged in productive activities which is beneficial for the society and it can even help the person to pay back the debts to the creditors. Being in debt can be scary but in civilized countries being in debt is not a crime. Now don’t think that these countries have very lenient policies against the debtor but it’s just that these offences are stated as civil offence not criminal offense. The only reason you could go to jail in these countries as a result of debt is if a person deliberately flout certain court orders. The prison sentence in these countries will never be for the non-payment of debt but it will be for the offence of failing to obey the court’s order regarding the debts.

Originally when the Negotiable Instrument Act, 1881 was enacted in India, the cause of action was to file a civil suit for dishonor of cheque. However, an amendment in the year 1988 was brought to criminalize the dishonor of cheque.  Even after criminalizing the said offence, no difference could be seen in the society and since then a huge number of cases have been filed in the criminal courts. In today’s era, cheques are used in almost all transactions, be the guarantee of loans, payment of salary to employees, payment of bills, tenders etc. According to the 213th Law Commission report, there are over 38 lacs cheque bounce cases which are presently pending in the Courts. The legislative intent behind the amendment of the act was to provide a penal remedy to deter such incidents and to ensure adequate compensation to the rightful claimants.

Going through today’s scenario i.e. Covid-19 “a pandemic”, we have seen that the whole country was in lock-down and the effects of lock-down on the financial market persists. The lock-down has affected the Indian Economy drastically. With industries, transport, shops and malls shut, economic activities came to a grinding halt in India from the end of March. Many people around the country are losing their jobs.

The Government here is taking necessary steps by allowing a deferment of all loan repayments. It is quite clear that the number of cheque bounce cases will rise because people who have already given their cheques will be held under present law. So there is a need that the same should be partially decriminalized. The criminal proceedings also impose an unfair pressure on defendants as they know that if they do not discharge the debt guaranteed by the cheque, they will be sent to jail directly for two years with addition of paying doubled the disputed amount. In civil law there is no question of paying twice the disputed amount but if he doesn’t have the sufficient sum money to make the repayment, the court has the power to attach the property of the debtor by auctioning it to pay off the creditor and if the debt still subsists even after the attachment of the property, the debtor can be sent to prison under Civil Procedure Code. Therefore, under Civil Law also a debtor can be sent to prison, but it is more just and fair as it does not create so much pressure and offers some breathing room to the debtor.

The law we have is outdated and it also violates the UN’s International bill of Human Rights which we are a signatory of as the bill explicitly states that the right to Liberty prohibits imprisonment as punishment for breach of contract. In Meters and Instruments Private Limited and Ors. V. Kanchan Mehta AIR 2017 SC 4594, it was observed that the nature of offence Under Section 138 of the Negotiable Instrument Act is primarily a civil wrong.


Apart from the above laws, here are some of the measures and suggestions which can be implemented:

  1. Banks should stop issuing cheques to repeating offenders.
  2. Banks should freeze the account of the debtor until he has enough money to pay off his debt.
  3. Banks should put a cap at a minimum amount on which the criminal charges cannot be imposed. If any cheque of a value above this capped amount bounces, the debtor shall be liable for criminal prosecution.

The government thinks it ought to decriminalize the offence altogether but, in my opinion, this won’t be beneficial at all. If a cheque bounces, the debtor should be given some time to repay the debt depending upon the amount of the debt. If he fails to do so in the stipulated time, the Court should then attach his property. If the debt cannot be recovered even after attaching the property, the Court can then press criminal charges against the debtor and can send him to prison for whatever time period it may deem fit. The increasing cases of dishonor of cheques in India is a reason why many foreign companies are hesitating while investing in our country. They fear that they might not be able to recover their debts if such a situation arises. Decriminalizing Section 138 altogether will also hamper international investments in our country. I believe as a civilized society we should move from the Dickinson ideals of workhouses and debtors prison where he did much to mold public opinion in favor of “abolition of individual being imprisoned for defaulting on repayment of debt”.


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Akshat Dewan

"Akshat Dewan is a practicing lawyer at Rajasthan High Court who has completed his law from University of Petroleum and Energy Studies in B.A. LL.B (Energy Hons)."