The criminalization of cheque dishonour

Author:- Alika Jain


The criminalization of cheque dishonour in 1988, show casts disequilibrium in 21st century’s criminal courts. During that time Imperial Govt. proposed a move to strengthen the business and trading activities in the country, by implementation of – The Negotiable Instrument Act, 1881 that is backed with poor policy regulations and in addition this section laid extra onus on criminal courts and jails. Due to the huge backlog of the cheque bouncing cases the trial of other more important serious cases are sidelined. Apart from this, due to covid 19 pandemic the whole state is under lockdown and the closure of courts added several new cases while those cases which are pending already exists.

In 1988, Section 138, of the act was introduced with a view to safeguard the faith of the creditor on the drawer of the cheque and to ensure greater vigilance in the financial matters. While sec. 138 helped to ensure greater vigilance, its effect was diluted due to the deceitful delay tactics adopted by the drawers to delay their liability. More reasons behind the introduction of the sec. 138 includes- WORLD BANK’S EASE OF DOING BUSINESS since till late 80’s cash played a major role as a mode of exchange for business and trading activities in India and to promote and ensure wider growth of the banking sector govt. took the initiative to promote the use of Cheque as a safest mode of exchange especially for medium and large scale businesses and investors with a view to promote foreign investments.

The 213th report of the Law Commission of India also pointed out that over 38 lakh cheque bouncing cases were pending in various courts in the country as of then , and over 7.6 lakh cases were pending in the criminal courts in Delhi at the Magisterial Level alone. In a letter addressed to Finance Minister Nirmala Sitharaman, the Confederation of all India Traders (CAIT), has suggested the formation of fast track courts at district level to deal with the cases of bounced cheques on immediate basis and bring amendments in Section 138 of The Negotiable Instrument Act, 1881. 
The letter also quoted a Supreme Court Bench headed by Justice Adarsh Kumar Goel, who observed on 20th June 2018, that more than 20 per cent of the cases in subordinate courts dealt with bounced cheques—which is a criminal offence involving penal as well as pecuniary punishment—and thus norms had to be laid down to expedite decisions & encourage compounding of offences under Section 138 of the Act. 

Moreover decriminalization means- taking an act that is illegal and removing criminal penalties. This means that the penalty imposed will not be affected only the clause of criminal penalty that is judicial custody upto 2 years is to be repealed.

  1. 30% of criminal cases in India are either cheque bounce or traffic offences, moreover, there are more than 40 lakh cheque bounce cases pending in India in 2019 and the current COVID 19 situation adds on multiple new cases in the list that directly puts an extra junk on the criminal courts and our legal system. As reported by the police 1990 new crime cases are reported in India between 15 to 31st march 2020 , and the justice couldn’t be imparted due to closure of the courts during this COVID 19 pandemic. This shows that our criminal  courts and jails are badly clogged-

So, as to provide relief various state govt. has already taken the initiative to release the prisoners from jails with a motive to ensure their health and other basic needs during this lockdown. This shows that there is a dire need to review our criminal justice system as there are more heinous crime than dishonor of cheque that needs to be given priority for the betterment and relief to victims.

  • Risk of imprisonment for actions or omissions that aren’t necessarily fraudulent is a big hurdle in attracting investment where our honorable Prime Minister wants India to- make for world whereas India stands 63rd in EASE OF DOING BUSINESS among the 190 countries in the world, but the current lockdown situation has put a question mark for the investors seeking investment in India due to economic war going around the world-

As reported by World Bank,   one major stigma responsible for India’s position in this index is- POOR CONTRACT ENFORCEMENTS. Though India continues its upward march in the ease of doing business rankings — climbing up to 63rd place in the latest edition — the country continues to remain a laggard (at 163rd place among 190 countries) when it comes to enforcement of contract.

  • Criminalization of cheque bounce cases in 1988, turn out as a boon for the banking industry as it multiplied there share and rating value as cheque proved out as a more reliable and safest mode of exchange but looking at current situations there are many other mode of exchange that can replace cheque and can also reduce extra onus. 
  • RTGS and NEFT can easily replace the use of cheque as they are more adaptable, dynamic and user friendly.
  • Such replacement can also reduce the burden of accounting.
  • All the information can be accessed by just one click on your mobile.
  • Online transactions that are the safest mode of transactions will face some challenges that will help to rectify such errors and this must be made through some amendments in PAYMENT AND SETTLEMENT SYSTEMS ACT.
  • Contracts enforcement will become easy as people will start relying on other parties.
  • As a result of decriminalization of penalties for minor offences that act as a determent for domestic as well as foreign investments, new policies can attract the investors to invest in India.
  • Postdated and blank cheque that are widely used to secure payment in future results in biased judgments-

Such judgments are biased towards the party which expects payment and has no remedy to the party which is getting a service or good. As 60% case of cheque bounce are due to the fact that parties having the possession of blank cheque  that are signed already -fill supplementary amount on it and such cases when go to court either take years to impart justice due to lack of evidences but it is found that in more cases the judgment is biased.

  • Reason behind the clogging of criminal courts with cheque bounce cases is in criminal the court fees levied is very low as such required as a stamp fees but in civil courts the court fees is high (as 7% of the amount claimed while registering the case in the state of Rajasthan) THAT EVENTUALLY DISCOURAGES THE BEARER OF THE CHEQUE TO FILL INCORRECT AMOUNT IN THE CHEQUE- that reduces the fraudulent biased cases.


 Decriminalization of section 138 of N.I. act  is a better move to improve the transparency of Indian legal justice system  if implemented with proper policy regulations -AS SUCH A STEP IS VERY IMPORTANT TO SECURE THE FUTURE OF BUSINESS AND TRADING IN INDIA WHILE LOOKING FORWARD TO THIS COVID 19 PANDEMIC SITUATIONS. Apart from this in present scenario when there is economic slowdown globally, if India wants to emerge as a key player than this step needs to be implemented, the government will also have to consider changing the rules governing e- commerce guidelines and data localization for attracting foreign investors India has a great competitive advantage in terms of relationship with other nations. Last but not the least any policy change, decriminalizing of the minor offences or enactments by the government has to be made keeping in mind the long-term effects of the same and its repercussions. Proving innocence in an Indian court of law may take ages. In a criminal case, the offence has to be proved beyond reasonable doubt to secure the conviction of the accused, whereas in a civil case, the plaintiff has to prove a wrongdoing only on the basis of preponderance of probability. Imposing a civil penalty is easier.




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