• Introduction:

Negotiable Instruments Act was brought into force in 1881. The objective of the act was to regulate and protect different mercantile transactions. There are various types of negotiable instruments such as Bills of Exchange, Promissory Notes, Cheques, Bank Notes, Debentures, Dividend Warrants, Treasury Bills, etc. All these instruments work as a medium for exchanging money.

In this article we will be dealing with the provisions of dishonoring of Cheques and what will be the implications if Section 138 will be decriminalized.

• What are Cheques?

“A cheque is an order by the customer of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.”[1]

There are three parties in a cheque, the drawer, the drawee and the payee. Drawer is the person who draws a cheque upon another person and signs upon it. Drawee is the person who is directed by the drawer to pay a certain sum of money and the payee is the person who is the ultimate beneficiary.

• Dishonoring of Cheques:

Section 138 of Negotiable Instruments Act, 1881 talks about “Dishonor of cheque for insufficiency, etc., of funds in the account.” It means that when a cheque is presented for payment to the bank and upon presentation the bank denies to make the payment due to insufficiency of funds in the drawer’s account the cheque is considered to be bounced. Once the cheque is bounced a notice to be issued to the drawer within 30 days and upon receiving up of the notice the drawer must make the payment within the span of 15 days, if he fails to do that cognizance of the case may be taken by the Magistrate upon receiving the complaint in writing. Magistrate cannot take suo moto cognizance of any case related to dishonoring of cheques.  

The complaint filed related to dishonoring of cheques will be treated as a criminal complaint and is a bailable offence.  Section 138 of Negotiable Instrument Act also defines the punishment for an imprisonment for 2 years and fine which may extend to twice the amount of the dishonored cheque or both.

• Decriminalization of Section 138:

Section 138 is a criminal offence and also a bailable and compoundable offence. However, in the recent past there has been a buzz around decriminalizing the same offence. On June 8 2020 the Ministry of Finance Affairs proposed to decriminalize certain offences that are minor economic offences. It means the person has to pay a certain amount of fine and he will be free from the obligation.

Supreme Court in the case Kaushalya Devi Massand v. Roopkishore Khore[2] held that “Having considered the submissions made on behalf of the parties, we are of the view that the gravity of a complaint under the Negotiable Instruments Act cannot be equated with an offence under the provisions of the Penal Code, 1860 or other criminal offences. An offence under Section 138 of NI Act, is almost in the nature of a civil wrong which has been given criminal overtones.”

In the year 2017 Hon’ble Supreme Court in the case M/S. Meters and Instruments Private Limited & Anr. Vs. Kanchan Mehta[3] upheld the view that “Offence under Section 138 of the Act is primarily a civil wrong. Burden of proof is on accused in view presumption under Section 139 but the standard of such proof is preponderance of probabilities.”

Since, the court is considering it a civil wrong justifies the proposal given by the government. However, there are certain factors that have to be kept in mind while decriminalizing the said provision. Section 138 safeguards the rights of the payee as it acts as a tool to protect him from any fraud and assures that if any fraud happens he has a relief measure provided by the act.

It is quite evident that there are many pending cases before the courts that are related to dishonoring of cheques and to lower down the burden this decision will be very fruitful in the upcoming years. But instead of decriminalizing it the government has other options for which they can look for and adapt it. Some of the major options are:

1. The government may ask to levy heavy penalties upon the defaulter. The current law provides punishment for twice the amount which is very minimal but if heavy penalties are laid down it will create a fear among the defaulters.
2. If a person is a habitual defaulter then the government may create special provision for that where his personal property can be attached if the default does not get cleared in a stipulated period of time.
3. Digitalize the payment mode that is done in the form of cheque.

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[1] Section 6 of NIA

[2] (2011) 4 SCC 593.

[3] Appeal (Crl.), 1731 of 2017.