Don't fix what isn't broken: The proposed decriminalization of cheque bouncing
Analyzing the Government of India's proposed move to decriminalize the offence in respect of dishonored cheques.
The Government of India recently sought suggestions from stakeholders on
its proposed decriminalization of 39 sections across 18 legislations . Of these, the most
controversial has been the proposed decriminalization of the offence of
cheque 'bouncing' under The Negotiable Instruments Act, 1881 (“ Act”).
Section 138 of the Act treats the dishonour of a cheque as a crime. The Act
penalizes anyone who signs a cheque which is eventually dishonored, with
jail time of up to two years or a fine for twice the amount dishonored, or
both. It treats a civil transaction as a criminal offence by fiction of law . Section 143(1) of the
Act provides for a summary trial if the sentence for imprisonment does not
exceed one year. While in the middle of such a summary trial, the
Magistrate may revert to the usual trial procedure prescribed under the
criminal code if it realizes that the term of imprisonment it may impose
might exceed one year. The Act  mandates that courts, in
the interest of justice, carry out trials in Section 138 cases on a day to
day basis and endeavour to conclude them within 6 months of filing the
The dishonoring of a cheque was criminalized by way of an amendment to the
Act in 1988. The then finance minister attributed the criminalization to
“persistent and widespread demands from various trade and industry
associations to make bouncing of cheques a penal offence”.
The current government's stated purpose behind the proposed
decriminalization can be segregated into (i) improving ease of doing
business and (ii) unclogging the court system. This article argues that
while both these objectives are noble, decriminalizing the offence of
dishonour of cheques will help achieve neither.
The current government's stated purpose behind the proposed decriminalization can be segregated into (i) improving ease of doing business and (ii) unclogging the court system. This article argues that while both these objectives are noble, decriminalizing the offence of dishonour of cheques will help achieve neither.
Ease of doing business
It is no secret that the pandemic has left the economy in shambles and
lenders, uncertain and circumspect. Every week heralds fresh news of
layoffs and salary cuts, resulting in unpaid EMIs, rents and other debts.
Through the proposed decriminalisation, the Government seems intent on
removing any impediments in the way of its attempt to kick-start the
country’s economy, in the aftermath of the pandemic. While several archaic
laws prescribing criminal penalties have served to clip the figurative
wings of India’s economy in the past, including Section 138 in that bracket
would be doing disservice to an effective law.
Section 138 of the Act was incorporated with the specific objective of
introducing strict liability with respect to cheques. The summary procedure
and penalty provided for in Section 138 was aimed at, and has served to,
encourage usage of the cheque and enhance the credibility of the
The Act  presumes that a
cheque, of the nature referred to in Section 138, is received in whole or
part by the holder, for the discharge of any debt or liability, unless it
is proven otherwise. A large number of transactions in India require
post-dated cheques to be deposited with the creditor/ lender as collateral.
These range from simple day to day transactions such as securing future
rent, to more complex mercantile transactions. Currently, the criminal
charge and jail term prescribed by the Act adequately deters the debtor
from issuing a post-dated cheque without maintaining the requisite account
balance. However, in the event cheque bouncing is decriminalised, this
deterrent would no longer hold water. This would greatly reduce the
credibility of the post-dated cheque and the transactions that utilise it.
To remove the cushioning provided to lenders by Section 138 would in turn
alleviate the fear of any criminal liability or imprisonment upon the
debtor. The vanishing of the Sword of Damocles from above the head of the
debtor, could in fact increase the suspicion and caution of lenders such as
banks and other financial institutions, which lend capital based on
post-dated cheques, thereby resulting in a further slowdown of the economy.
A 2008 Law Commission Report  suggests that 20% of the
pending litigation in India (over 38 lac cases) comprises of complaints
under the Act pertaining to dishonour of cheques. There is no denying that
complaints under Section 138 cast a heavy burden on courts. However, this
is also indicative of the rampant nature of the offence and the need to
deal with it effectively. Sections 138 and 143 establish a dedicated
framework for resolution of a common manner of financial default in a time
Mindful of this burden, the 2018 amendments to the Act  sought to mitigate the
problem. Section 143A of the Act empowers the Magistrate to award interim
compensation of up to 20 per cent of the cheque amount to the drawee, in
summary trials or summons cases in which the drawer has pleaded ‘not
guilty’. Through this amendment, which compliments the pre-existing
timeline of six months for disposal of such cases, the Government has
attempted to oil cogs that seemed somewhat jammed, and offer respite to
complainants who were unable to secure speedy relief owing to the large
volume of such cases.
There is no denying that complaints under Section 138 cast a heavy burden on courts. However, this is also indicative of the rampant nature of the offence and the need to deal with it effectively. Sections 138 and 143 establish a dedicated framework for resolution of a common manner of financial default in a time bound fashion.
While decriminalizing the offence will on one hand reduce the burden of the
courts going forward, it will in the same breath add an equal volume of
civil actions for recovery of monies. In effect, complainants who had a
speedy remedy available under Section 138 will now be relegated to choose
the more elaborate and painstaking remedy of an expensive civil suit.
Glaring judicial vacancies and the lack of quick and cost-efficient
alternate dispute resolution mechanisms are some of the many reasons that
courts remain clogged. To this end, the Law Commission had recommended that Fast Track Courts of Magistrates be set up to tackle the volume of
Section 138 complaints. 
However, the quagmire that is the overburdened judiciary is a multifaceted
issue of great complexity and must be reserved for an in-depth discussion
another time. For now, instead of refining the process so as to minimize
the burden on the judiciary, the Government is proposing to throw the baby
out with the bath water.
The armour that is Section 138 of the Act, is not without its fair share of
chinks. The Government’s proposed decriminalisation of this section along
with Section 143(1), for the purposes elucidated in its
Statement of Reason 
seems to miss the mark of kick-starting the country’s economy or unclogging
the judicial system, by a great distance. The means are antithetical to the
end. While other legislations referred to in the Government’s press release
may criminalize “
procedural lapses and minor non-compliances [which] increases burden on
Section 138 of the Act is not one such legislation. Neither is the offence
of dishonour of a cheque “a minor non-compliance” nor something
that “does not impact public interest at large”.
As far as Section 138 and Section 143(1) of the Act are concerned, until a
more comprehensive alternative is developed, it might be most prudent to
adopt the strategy, “don’t fix what isn’t broken”.
Zubin Narielwala (Associate) and Zaid Sufi Wahidi (Associate)
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