DECRIMINALISATION OF DISHONOURED CHEQUES

INTRODUCTION

Cheque is a carrier without luggage. It carries money of any quantity on a single

small piece of paper. It has made money transactions very easy, convenient,
economical as well as very safe and secured vis-a-vis the legal tender. The negotiable
instruments particularly cheque has oiled the wheels of commerce and facilitated
quick transactions. It has facilitated trade and commerce tremendously.
Cheques are used in almost all transactions such as re-payment of loan, payment of
salary, bills, fees, etc. A vast majority of cheques are processed and cleared by banks
on daily basis. Cheques are issued for the reason of securing proof of payment.
Nevertheless, cheques remain a reliable method of payment for many people.
However, by the fall in moral standards, cheques issued, started losing their
creditability by not being honoured on presentment. Normally when the cheque
deposited by anybody for collection or presented for payment at the teller counter, the
banker makes payment of the cheque subject to several conditions.
When the cheque is returned by the banker for anyone or more reasons by the banker,
it is known as dishonour and the cheque thus dishonoured is known as dishonoured
cheque. A cheque is a negotiable instrument which has been defined under Section 6 of
the Negotiable Instruments Act,1881.
The Negotiable Instruments Act, 1881 makes the dishonour of cheques a criminal
offence after the introduction of the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988. Section 138 of The Negotiable
instruments Act provides that the dishonour of cheques for the reasons:
a. Insufficiency of funds and
b. Signature on the cheque does not match that in the bank records.
After the introduction of this amendment, it was an enactment falling under civil law
but after the introduction , it will also have a penal provision.
After the addition of Section 138-142 in the Act, the Parliament again passed an Act
known as “Repealing and Amending Act, 2001. Only the 1988 amendment in the
principal Act of 1881 has been repealed and the provision providing for punishment of
one year imprisonment for bouncing of cheques continues to be in the statute book.
However,it has both Civil and Criminal liability at present. A Civil suit of money as
well as a complaint is maintainable under Section 138. The drawer of the bounced
cheque can also be held criminally liable under section of 420 IPC provided that
dishonest intention must be established at the time of the issuance of the cheque.
In December 2015 , The Cabinet approved an amendment to the current law to allow
for payment of an interim compensation in cheque dishonour cases in order to avoid
long trials. Decriminalisation of dishonoured cheques is a debatable topic and still a
matter of concern for the Government.
 STATEMENT OF PROBLEM

Bouncing of cheques became an endemic problem during 1980s. This has made it
difficult to do transactions where payment and delivery don’t happen simultaneously,
this led to the criminalisation of cheque bouncing. The criminalisation of cheque
bouncing in 1988, increased the burden on Civil Courts. The Decriminalisation of
cheque bouncing is a good move but there is a dark side to this as well. The author
seeks to analyze the scope of Decriminalisation of dishonoured cheques in Indian
Context.

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 RESEARCH QUESTIONS

Q1. Whether bouncing of cheques should be decriminalised or not?

Q2. What will be the benefits of decriminalisation of dishonoured cheques?
Q3. What are the effective remedies to prevent the bouncing of cheques?

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 RESEARCH OBJECTIVES
1. To critically analyse the ruling of The Supreme Court of India in Dalmia
Cement (Bharat) Ltd. v Galaxy Traders & Agencies Ltd.
2. To critically analyse the Section 138 of Negotiable Instruments Act, 1881.
3. To understand the consequences of Criminalisation and decriminalisation of
Dishonoured cheques in India.

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 TENTATIVE CHAPTERISATION

1. Acknowledgement
2. Introduction
3. Criminalisation of dishonoured cheques.
4. Consequences of criminalisation for courts
5. Analysis of Section 138 of the Negotiable Instruments Act,1881.
6. Analysis of Dalmia Cement (Bharat) Ltd. v Galaxy Traders & Agencies Ltd.
7. Decriminalising cheque bouncing and its benefit.
8. Remedies to avoid cheque bouncing .
9. Conclusion
10. Bibliography

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 LITERATURE SURVEY

 Halsbury's Laws of England Volume 48(Financial Transactions)

This book deals with the concept of negotiable instruments and also a
recent commentary on the subject. This book serves as an authority on this subject
and is referred to understand basic concept law in negotiable instruments.

 Dishonour of Cheques by S.N. Gupta

This book also is very helpful in my project because it specifically deals with the
provisions of dishonour of cheques. This book also talks about the Civil and Criminal
nature of bouncing of cheques.

 Corpus Juris Secundram Part 2010

Corpus Juris Secumdram is referred in this project to understand the various

terminology used in the Negotiable Instruments Act,1881. It is very helpful in
understanding the criminalisation of dishonoured cheques and its consequences.

 Halsbury's Laws of India , volume 4 , Butterworths India.

This book provides thr conceptual aspects of criminalisation of dishonoured cheques.

This book serves as an authority on this subject of law. It will therefore provide a in
depth analysis of the law in negotiable instruments.

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 CASE IDENTIFIED
1. Dalmia Cement (Bharat) Ltd. v Galaxy Traders & Agencies Ltd.
2. Indus Airways Pvt. Ltd. v Magnum Aviation Pvt. Ltd.
3. Kaushalya Devi Massand v Roopkishore Khore