Dishonouring cheques was originally a civil offence and did not attract criminal penalty until the amendment inserting Section 138 with allied provisions was made in the Negotiable Instruments Act (NIA), 1881. This made it a punishable offence in 1988 in a bid to establish faith and credibility in banking operations, and discourage people from not honouring their commitments by way of making payment through cheques.

 However, the Finance Ministry recently issued a public notice titled “Decriminalisation of Minor Offences for Improving Business Sentiment and Unclogging Court Processes”, which proposes decriminalisation of a host of offences, including Section 138 of the NIA. The justification was improving ease of doing business and encouraging investment.

 But the legal community are by and large averse to the government indulging in soft-peddling the issue, pointing out that removing this provision would lead to loss of confidence in cheque transactions, which in turn would adversely affect the conduct of business especially on credit. They noted that a person failing to pay the amount due to another person can be considered

 an act of omission. But on the other hand, failing to honour a cheque is an overt act of commission and a criminal offence.

 Strongly opposing the decriminalisation of Sections 138 and 143(1), senior advocate and Bar Council of India co-chairman S Prabakaran said the purpose of using cheque as an instrument would be defeated. “Such a stand will demoralise the usage of cheque as a negotiable instrument across all sectors. Further, decriminalisation of Sections 138 and 143(1) will encourage fraudsters to adopt measures for illegalities that may follow, which were only addressed under the Negotiable Instruments Act, 1881.” 

He warned that this could lead to cropping up of illegalities abundantly in the name of business transactions.

 Even the other justification that the decriminalisation process would help unclog the judicial system has been met with stiff resistance. Though advocates conceded that large numbers of such cases are pending before the courts, they argued that decriminalisation was not the answer as the burden would merely shift from criminal courts to civil courts.

 “Decriminalisation of cheque bounce/dishonour will mainly benefit companies and organisations that have no fear of civil litigation. And doing away with the personal criminal liability of directors, with no fear of arrest or paying fine, would be tantamount to giving them a blanket licence to issue cheques, and upon dishonour, happily face civil litigation which is an ordeal for the payee as compared to the swift Negotiable Instrument Act proceedings,” Prabakaran had said in response to the suggestions sought for by the Finance Ministry.

 Though some advocates seek to fix a minimum threshold limit for invoking the criminal jurisdiction in such cases thereby maintaining the legislative intent while reducing the burden on courts by weeding out smaller cases that do not involve the prosecution of individuals, the majority view is that the existing sections ought to be retained and any attempt to remove it would encourage perpetrators to defraud money lenders in one form or the other and get away with it.