Analysis of the Proposed Decriminalisation of Section 138 of the NI Act

This blog is inscribed by P Sriya.


As part of the Indian Government’s objective “Sabka Saath, Sabka Vikas Sabka Vishwas”, The Union Ministry on June 8, 2020, vide its issuance of Statement of Reason, proposed a series of amendments to decriminalise offences under various acts like the Insurance Act 1923, NABARD Act 1981, SARFAESI Act 2002, Negotiable Instruments Act 1881 (NI Act) and other such acts with minor offences or statutory offences. One such proposed amendment is the decriminalisation of the offence of Dishonour of Cheques, under Section 138 of the NI Act. This proposed amendment has received quite the backlash, but the most discouraging decriminalisation has been that of Section 138 of NI Act. This article explores the possible outcomes of this decriminalisation. 

Section 138 of the NI Act

Section 138-142 of the NI Act were introduced to ensure credibility in transactions made through cheques.[1] Section 138 casts criminal liability punishable either with fine or imprisonment or both onto the payer when cheque he issues is dishonoured due to lack of funds in the payer’s account.[2] The payer is the individual who gives the cheques and the payee is who encashes the cheque. Apart from existing civil liability, criminal liability was cast through this section to ensure the credibility of this mode of financial transaction and to enforce the civil right of creditors.

Reasons for the proposed amendment

In a very democratic way of execution, the Ministry within its statement of reason enclosed the reasons for the proposed amendment and invited opinions from stakeholders on its impending decision. The reasons cited to keep in mind in terms of this reclassification of specific offences are:

  1. To inspire confidence amongst the investors and for the ease of business
  2. Need to focus on economic growth and public interest
  3. The role of mens rea in fixating criminal liability and the absence of this requirement in many of the suggested decriminalisation of existing offences
  4. The habitual nature of non-compliance

Analysing the Decriminalisation

Analysing these principles that the reasons cited, we realise that decriminalisation may not be the apt solution. Further, there is a scope of an adverse impact on the projected ease of business. Firstly, refuting the logic that decriminalising section would inspire confidence amongst investors, it might have the opposite impact. One of the main motives of introducing this offence was to increase the credibility to financial transactions through negotiable instruments and to ensure faith in working and operation of banking organisations. Over time, the section was amended and provisions for a summary trial and compounding of the offence were made to ease the process. Deleting this section would be in direct contravention with the object of the Statute, to ensure credibility in negotiable instruments. Lack of deterrent provisions will create a lack of faith in negotiable instruments which may lead to refusal of payment in such modes. This would in turn increase cash transactions hampering the dream of a cashless economy.

Citing the huge backlog in courts in its statement, the government also reasoned that decriminalising minor offences would ease the burden on courts. The statistics are quite true: In Maharashtra itself, 15% of the pending cases in the district courts are exclusively cases of dishonour of negotiable instruments. However valid this issue might be, is reducing the number of ways the ideal way to approach this issue? With that logic, the best way to reduce the crime rate is to repeal the Indian Penal Code. Decriminalising S.138 may not be as illogical as deleting the IPC but it forms its basis on the same logic. When a cheque bounces, complainants often resort to Section 138 despite a civil remedy existing as the court fee is lesser in a criminal offence and a civil trial lasts much longer than a criminal proceeding which would also increase the cost of the suit. Further, the right to receive an interim compensation of up to 20% u/s 143A is an added benefit with a trial u/s 138 which makes this option more attractive to the complainants.

An argument in favour of the decriminalisation is to provide relief to the existing economy that has taken a toll due to the COVID-19 pandemic. It is a welcoming change to foreign investors to whom the relaxation is beneficial. Further, it would aid the honest payers who have incurred losses and are unable to pay their debts due to the current situation. However, what it will do additionally is it will act as a deterrent to those accepting post-dated cheques, which is an arguably efficient and popular option for the sake of facilitating credit. Additionally, it will adversely affect creditors whose difficulty who will have to wait longer to get their dues paid up. The current procedure for this offence has beneficial provisions like compounding of the offence, issuance of notice about the check bounce which would protect those who do not have malafide intentions. Measures to provide relief in the current situation is very welcome and much needed. However, entirely decriminalising these offences is not the answer to this malady. 

The doctrine of strict liability in criminal law dictates how certain offences need not possess the mens rea or the motive to commit the offence, the injury itself casts liability and its aimed to give effect to the social object of the statute. It is an established principle that offences which have a social object or enforce civil rights cast strict liability. Mens rea is critical to evaluate the non-compliance, however, it is not correct to assume non-compliance is higher because mens rearequirement is done away with. On the contrary, casting strict liability will act as a deterrent to commit the offence. The habitual nature of non-compliance is an existent issue which must be dealt with. Close to half the proceedings under S.138 lie pending due to the absence of the accused. This is an example of the nonchalant nature of the accused and decriminalising this offence is only going to worsen this. This must be remedied by appropriate measures and decriminalising is not one of them.

Over the years, even the judiciary has made efforts to mould the offence and issue precedents for better enforcement. In the matter of Damodar S. Prabhu v. Sayed Babalal[3], the Supreme Court stated that compensatory remedy would be practised over its punitive counterpart. Compounding of the issue has also been incentivised with the aim to reduce the number of trials and without any requirement of formal permission for the same. Further improvements can be made to the existing system to ensure a more smoothened and less time-consuming process. For example, the summary trial can be shortened further or addressed in Lok Adalats to ensure speedy delivery of justice. Introducing further checks or additional features within the existing framework for better enforcement is a preferred option over decriminalisation which is a radical move with more ill consequences than benefits.


The global economy, as well as the Indian economy, have taken major blows owing to the present scenario surrounding the pandemic and in these hard times, economic reforms and reliefs are a welcome treat. However, it must be kept in mind that the proposed benefits must not be outweighed by the possible negative outcomes out of the relief measures. While measures like an extension of certain procedural deadlines, raising the minimum limit with regards to insolvency proceedings are all welcome and beneficial measures, decriminalising S.138 may not yield similar results and might just make things worse. With fraudulent crimes on the rise now more than ever, decriminalising offences like Check bouncing can have catastrophic impacts and further erode the faith of creditors making them more insecure.


  1. Perves Memon & Zulfiquar Memon, CNBC 18,  Decriminalising Dishonour of Cheque, June 20, 2020, available at Last visited: July 10, 2020.
  2. Farhad Singh Kohli, Firstpost, Leniency during COVID-19 is fine, but decriminalising Section 138 encourages financial crime, harms creditors’ confidence and hurts economy, July 1, 2020, available at Last visited: July 10, 2020.
  3. Rupali & Bhavi, Taxguru, ‘Decriminalisation of S138’ is Indian Economy heading for a DOOM?, June 26, 2020, available at Last visited: July 10, 2020.
  4. Vinay Pandey, LiveLaw, Decriminalisation of Dishonour of Cheque- A Right Initiative?, July 4, 2020, available at Last visited: July 10, 2020.

[1] Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249.

[2] SMS Pharmaceuticals Ltd. v. Neeta Bhalla(2005) 8 SCC 89.

[3] Damodar S. Prabhu v. Sayed Babalal H. (2010) 5 SCC 663.

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