Decriminalizing Section 138 of the Negotiable Instrument Act, 1881. Whether Right or Wrong?


Negotiable Instrument is derived from two words i.e. Negotiable and Instrument which have different definition in context. “Negotiable means anything that is transferrable’ and “Instrument denotes to a written document”. Negotiable Instrument shall be of such nature that it should be in the form of writing and signed by the maker or drawer for an unconditional promise or order to pay a sum from one person to another.

According to section 13 of the Negotiable Instrument Act, 1881 Negotiable Instrument consists of Promissory notes, Bills of exchange, and Cheques. In this article, you will understand the different aspects of Negotiable Instrument which we will study in brief in this Article.

Types of Negotiable Instrument

Promissory Note

It is one of the legal documents or an instrument by which rights are determined and the party promises to pay the specific amount of money to another person at the desire of the payee (a person to whom the payment is to b made). The promissory note is unconditional and other instrument and is duly signed by the maker (Person who makes the Promissory note and promises to pay a certain amount) himself.

Bills of Exchange

This Negotiable Instrument is in a form of a written promissory document for a person to pay a certain amount of money to the required payee. The bill of exchange consists of three parties i.e. drawer, drawee, and payee respectively. It shall consist of unconditional order duly signed by the maker directing a person to pay the amount.


The Cheque is an order for the bank to pay a specific amount of money in the account of the drawer. A Cheque is always drawn on a specific banker and shall be payable upon the request. A Cheque is a widely used method of payment and most frequently used in day to day transaction in business.

Section 138 of Negotiable Instrument Act, 1881

  • This section deal with the dishonour of the Cheque for insufficiency of funds in the account. Whether any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or part of any debt or liability is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement done with that bank. Such person shall be deemed to have committed an offence.
  • This section also talks about punishment for dishonouring of cheques. Previously, section 138 was introduced as a criminal offence in the year 1989 in the form of an amendment. The main objective of this section was to encourage the use and circulation of Cheques and increasing the credibility of the transaction done through cheques by making dishonouring cheque as an offence.
  • The defaulter can be punished with the imprisonment for a term that may extend to two years and fine may extend to twice the amount of the Cheque or both. This is also a non-cognizable offence.
  • The Penal provisions contained in section 138 of this act have been drafted to ensure that duties and obligation undertaken by issuing cheques as a mode of deferred payment honoured.
  • The essential ingredients in order to comply with section 138 are as follows:
  • A person must have drawn a cheque for the amount payable to another to discharge any debt or liability.
  • The cheque shall be presented to the bank within a period of three months only.
  • The cheque shall be returned by the bank unpaid, either because of insufficient funds or if the amount is more than to be paid from the account on the agreement made with the bank.
  • If the payee makes a demand for the payment of the amount by giving a notice in writing to the drawer within 15 days of the receipt of acknowledgement by him from the bank regarding the return of the cheque as unpaid.
  • The drawer fails to make payment to the payee within 15 days on receiving of the notice.
  • In a landmark judgment on section 138 of Negotiable Instrument, 1881, A.K. Bhaskaran v/s K.G. Sheeba KER 2019.
  • The trial Court after appreciating the contentions of both the parties and analysing the evidence, circumstances and probabilities of the case held that complainant failed to prove that accused had any financial transaction with him and acquitted the accused.
  • The complainant approached the High Court with an appeal. The High Court of Kerala observed that “it is trite law that drawing or execution of a Cheque becomes complete only by delivery.
  • Unless there is the delivery of Cheque, no liability could be fastened on the drawer.
  • The High Court then dismissed the appeal filed by the complainant and accepted the acquittal order passed by the Court.

Procedure for filing a complaint against the offender

  • On the instance of dishonour, a legal notice shall be issued in the name of the drawer within the 15 days of dishonour of the cheque mentioning all the relevant facts. On the other hand, the drawer shall be given 15 days time to make the payment. On making the desired payment the issue shall be considered settled and if no payment is made by the drawer than complainant may file a criminal case under section 138 of Negotiable Instrument Act, 1881 within 30 days from the date of expiry of 15 days specified notice to the concerned Magistrate of first-class in the jurisdiction.
  • In the case of K. Bhaskaran v. Sankaran AIR 1999 SC 3762, The Hon’ble Supreme Court had given jurisdiction to initiate the prosecution at the following places:
  • Where Cheque is drawn.
  • Where the payment has to be made.
  • Where a cheque is presented for payment.
  • Where a cheque is dishonoured.
  • Where notice is served to the drawer.
  • Then the Complainant or his authorized person shall appear in the Court and provide all the relevant information and document for filing the case. If the Court thinks fit and finds substance in the complaint, then summons shall be issued to the accused to appear before the competent authority or Court.
  • If the offender does appear in the Court after receiving a summon then Court may issue a bailable warrant against the person and even if he does not appear after it then a non-bailable warrant will be issued against the same.
  • On appearing of the drawer/accused, he may produce a bail bond to ensure his appearance during the trial. Thereafter, the plea of the accused is recorded. If the accused found guilty of the offence the Court will further post the matter for punishment.
  • The Complainant shall support his part with relevant evidence. He may support his case by producing witnesses in his support. The Complainant may cross-examine the accused and his witnesses in the Court.
  • In the later stage of the proceeding, the Court will pronounce its judgment and if the accused is acquitted then the matter shall be ended but the Complainant may appeal in higher Court.
  • It must be further noted that offence under Section 138 of the Negotiable Instrument Act, 1881 has been made compoundable in nature in the latest amendment.

Documents Required for the filing of  Complaint

  • The basic documents required for filing the Complaint under this section are as follows:
  • Memo of the Parties
  • Pre-summoning Evidence and Affidavit
  • Copy of Complaint under section 138 of Negotiable Instrument Act, 1881.
  • List of witnesses
  • Documents list
  • Vakalatnama
  • Original dishonored cheque
  • Copy of resolution authorizing Complainant’s Attorney (in case of Company, Firm, etc).
  •  Copy of Legal Notice
  •  Returning Memo date
  • Receipt no. And date

Decriminalizing the section 138

  • In the month of June this year 2020, several minor offenses were decriminalized by the Ministry of Finance for improving business sentiment and unclogging Court processes that included Section 138 of the Negotiable Instrument Act, 1881.
  • The main motive behind this step was to increase foreign investment in our country and will help in uplifting the economy during this pandemic situation.
  • The objective of this section is to promote the efficient functioning of the banking operation and ensure credibility in day to day transactions in business through cheques in the outbreak of the corona in the Country.
  • There were many debates and discussions going on decriminalizing section 138 as it might affect the public at large but it has a mixed impact on the lives of humans.
  • It might have a bad effect on the Creditors as they may lose their credibility in transactions through cheques as the main idea is to ease business and attract investors.

Principles involved in Decriminalizing

  • It has been asserted by many intellectuals and financial experts that Decriminalizing will decrease the burden involved in businesses and will develop confidence amongst the investors.
  • This will give rise to the growth of the economy, public interest, and national security.
  • Previously, mens rea played an important role in attracting criminal liability in dishonor of cheques. Therefore, it is important to evaluate the nature of non-compliance.
  • Hence, the habitual nature of non-compliance has to be kept in mind, and develop new ways of easy business and negligence must be differentiated with the non-compliance on the regular basis.

Was there a need for the Decriminalizing Section 138?

  • The legislative vision to introduce this section in the Negotiable Instrument Act was to bring security to the payment criteria. The punishment prescribed under this section would further help in reducing the risk of fraud and cheating.
  • Mens rea is considered as an essential component of crime in Indian penal Laws but mens rea is not of much need in the dishonor of cheque is a criminal offense. Strict liability is an effective measure to build trust and credibility in transactions.
  • Decriminalizing this section would reduce the piles of cases pending in the Court but the business risk will increase due to loss of credibility in the cheque system.
  • The fear of imprisonment and penalty of the fine was the main factor to make timely payments of Cheques. Now, in case of punishment is removed by decriminalizing section 138, creditors will definitely have to incur a lot of risks.


In the conclusion, like a coin has two different sides, decriminalizing section 138 will have a negative and positive aspect of its own. It is also well observed from the above context that, Negotiable Instrument means a promissory note, bill of exchange, and cheque payable to the bearer. This article tried to focus on every aspect of the Negotiable Instrument Act, 1881 that will help the reader to understand better.

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