Answer 2:-

Introduction and objective :-

Negotiable Instruments Act 1881 regulates the different types of negotiable
instruments like Promissory notes, Bills of Exchange and Cheques. According to Sec.
13 of the Act, negotiable instrument means ‘a Promissory Note, Bills of Exchange or
Cheque payable either to order or to bearer’. Thus, Negotiable Instrument in simple
terms means any written document which is transferable on delivery. Section 138 of
the act talks about punishment for dishonoring of cheques. Section 138 was
introduced as a criminal offence in 1989 by way of an amendment to the Negotiable
Instruments Act, 1881.The main objective of introduction of this section was to
encourage the use of cheques and increasing the credibility of transactions through
cheques by making the dishonoring of the cheques as an offence.

Section 138 provides that when the cheque is dishonored for insufficiency of funds or
for any of the prescribed reasons, the one who is at defaulter can be punished with
imprisonment for a term which may extend to two years, or with fine which may
extend to twice the amount of the cheque, or both. This is also a non-cognizable
offence.
Negotiable Instrument act was enacted in India much before its independence and therefore most
of provisions contained in it are based on the English statute. After independence in 1947, certain
modifications were made in Act in order to stringent the provisions of the Act and in that
sequence, an attempt is made out by the Indian legislature to incorporate chapter XVII
namely “Of Penalties in case of Dishonour of certain cheques for insufficiency of Funds in
the Accounts”

What is Cheque:
In today’s era of Banking, the term ‘Cheque’ not new to anyone. The statute (Section 6 of NI Act
) consider it as ‘a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise then on demand and it includes the electronic image of a truncated cheque and a
cheque in the electronic form’.

Legal Frame Work of Dishonour of Cheque:

1. Statutory aspects and its Legal Position
2. Procedure for filing a Complaint under Section 138, NI Act

3. Documents to be annexed with the Complaint

4. Recent Developments : Landmark Judgements

DECRIMINALISATION OF DISHONOURED CHEQUES:

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.

Statutory Aspects:

Section 138: An offence committed under Section 138 is a non-cognizable offence (a case in which a
police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence. The
offence under this section will be completed with following 5 components:

1. Drawing of Cheque by the drawer for the discharge of debt or other liability.

2. Presentation of Cheque within 6 months form the date on which it is drawn.

3. Dishonour of cheque and return unpaid by the drawee bank.

4. Statutory Notice within 30 days of receipt of information from the bank regarding the return of
cheque as unpaid to the drawer demanding payment of cheque amount.

5. Failure to make payment by the drawer within 15 days from the date of receipt of Notice;

Where can be a complaint filed?

The Complaint can be filed only in a Court within whose local jurisdiction the bank branch of
the payee, where the payee deposits the cheque for payment through his account, is situated,
except in case of bearer cheques, which are presented to the branch of the drawee bank and in
that case the local court of that branch would get jurisdiction.

Decriminalization of section -138:

Shortly after the introduction of the Companies (Amendment) Act 2020, which decriminalises 46
sections of the Companies Act 2013, the Ministry of Finance put forward a statement of reasons
proposing the decriminalisation of minor offences. Whilst most of the proposals relate

to offences in respect of which virtually no prosecutions have been initiated, the most relevant is the
proposal to decriminalise Section 138 of the Negotiable Instruments Act, 1881.

The primary objective of the offence of dishonouring of cheques was improving the efficacy of the
banking system and not enforcing civil law rights through criminal law. Dishonoured cheques were
blocking clearing systems and the offence was targeted at reducing this burden. Despite the criticism
this proposal has received from various stakeholders, I believe that, for an offence that has outlived its
usefulness, the Ministry of Finance’s proposal is a logical conclusion to various commercial and legal
developments. This move will impactfully lessen the burden on the criminal justice delivery system and
bring the law in line with the policy, legislative and legal initiatives undertaken over the last two
decades.

Makwana Mangaldas Tulsidas vs. The State of Gujarat and Anr. ’ has highlighted the
astounding figure of pending 138 cases. The Hon’ble Apex court has observed that:

“A recent study of the pending cases, reflects pendency of more than 35 lakh, which constitutes
more than 15 percent of the total criminal cases pending in the District Courts. Further, there is
a steady increase in the docket burden.”
It is submitted that the pendency of these cases is one of the biggest problems and the same needs to
be addressed as earliest. Moreover, the pendency also makes the complainants to wait for many years
to recover their legitimate dues.

Not to miss that the cheque bounce law is a summons , conducted via summary procedure. It means
that the normal criminal procedure that is enshrined under the Code of Criminal Procedure, 1973
doesn’t apply to such cases; and the endeavor is to complete the cheque bounce cases within 6 (six)
months. But the brutal statistics are mocking on the written letters of law.

Therefore, the main focus should be to expedite the said matters which will definitely bring huge relief
to various stakeholders across the nation. Needless to add, the same will bring more investment, the
businesses will grow and the creditors would be more confident in furnishing credit to the corporations
and others.

Conclusion

Like a coin has its two different sides, decriminalizing section 138 will also has pros and cons of its own.
On one hand where there is an ease of doing business, on the other hand creditors will lose confidence
in the system.Decriminalizing is not the only option left for ease of doing business. Thus it's not a good
idea to decriminalize this section as the main intent of incorporation of this section was increasing the
confidence of the creditors and also to increase the credibility in the cheque system.