Decriminalization Of Cheque Bounce Debate
📘 1. Background: What Is a Cheque Bounce?
A cheque bounce occurs when a cheque is dishonoured by the bank due to reasons like:
Insufficient funds
Account closed
Signature mismatch
Exceeds arrangement
Legal Provision:
Section 138 of the Negotiable Instruments Act, 1881 (NI Act) criminalizes the dishonour of cheques.
Punishable with:
Imprisonment up to 2 years, or
Fine up to twice the cheque amount, or both.
⚖️ 2. What Is the Decriminalization Debate?
In 2020, the Ministry of Finance issued a proposal to decriminalize Section 138 of the NI Act (as part of economic reforms), arguing that:
Criminal penalties clog courts.
It affects ease of doing business.
Civil recovery would be more appropriate.
However, there was significant opposition from:
Legal professionals
Trade bodies
Financial institutions
General public
Concerns against Decriminalization:
It would embolden defaulters.
Reduce the deterrent value.
Undermine cheque credibility in business.
Burden civil courts with recovery suits.
As of now, Section 138 remains a criminal offence, but the debate continues.
📜 3. Key Features of Section 138 NI Act
Cheque must be for discharge of legally enforceable debt.
Cheque must be presented within validity (usually 3 months).
Notice must be sent within 30 days of dishonour.
Drawer must fail to pay within 15 days of receipt of notice.
Complaint to be filed within 1 month of cause of action.
🧑⚖️ 4. Landmark Case Laws on Cheque Bounce and Decriminalization Issues
🔹 1. M/S Meters and Instruments Pvt. Ltd. v. Kanchan Mehta (2018) 1 SCC 560
Facts:
Cheque bounce case where the accused offered to settle the matter, but proceedings continued.
Held:
Supreme Court held that courts can close proceedings under Section 138 once compensation is paid, even without trial.
Emphasized compounding and settlement as a preferable route.
Directed liberal interpretation to reduce pendency and encourage resolution.
Significance:
Set the tone for quasi-civil treatment of cheque bounce cases, leaning towards settlement over punishment.
🔹 2. Dashrath Rupsingh Rathod v. State of Maharashtra (2014) 9 SCC 129
Facts:
Issue of territorial jurisdiction in cheque bounce cases.
Held:
Only the court within whose jurisdiction the drawee bank (i.e., where the cheque is dishonoured) is located has jurisdiction.
Prevented forum shopping.
Later Overruled by:
Negotiable Instruments (Amendment) Act, 2015, which now gives jurisdiction where cheque is deposited or dishonoured.
Significance:
Important in streamlining procedural aspects, which directly impact pendency of cheque bounce cases.
🔹 3. Lalit Kumar Sharma v. State of U.P. (2008) 5 SCC 638
Facts:
Accused issued multiple cheques that were dishonoured. Issue was whether multiple cases should be tried separately.
Held:
Each dishonoured cheque amounts to a separate offence under Section 138.
Separate trials necessary unless court directs otherwise.
Significance:
This procedural rigidity has led to massive court backlogs, one of the reasons cited in favour of decriminalization.
🔹 4. Jagdish Singh v. Natthu Singh (1992) Supp (1) SCC 647
Facts:
Cheque issued by agent; liability of the principal was under challenge.
Held:
A legally enforceable debt must exist.
Burden is on the drawer to rebut the presumption under Section 139.
Significance:
Established the presumption in favour of the holder, making cheque bounce a strong recovery mechanism.
🔹 5. Kumar Exports v. Sharma Carpets (2009) 2 SCC 513
Facts:
Dispute over whether the cheque was issued for a real debt.
Held:
Once cheque is issued, presumption under Section 139 arises that it was issued for a debt.
The drawer has to disprove the debt or liability with sufficient evidence.
Significance:
This rebuttable presumption is central to the effectiveness of Section 138 and is often cited as a reason not to decriminalize the offence.
🔹 6. Indian Bank Association v. Union of India (2014) 5 SCC 590
Facts:
Concerned with delay in trial and pendency of cheque bounce cases.
Held:
Laid down guidelines to fast-track disposal of Section 138 cases.
Directed establishment of special courts, use of summary trials, and technological solutions.
Significance:
Rather than decriminalize, Court emphasized procedural reform to speed up justice.
🧠 5. Summary Table of Case Laws
| Case Name | Key Legal Principle |
|---|---|
| Kanchan Mehta (2018) | Emphasis on compounding; quasi-civil nature of offence |
| Dashrath Rathod (2014) | Jurisdiction clarified; later overruled |
| Lalit Kumar Sharma (2008) | Each dishonour = separate offence |
| Jagdish Singh (1992) | Enforceable debt required; burden shifts to drawer |
| Kumar Exports (2009) | Section 139 presumption in favour of holder |
| Indian Bank Association (2014) | Procedural guidelines for faster disposal |
📊 6. Arguments For & Against Decriminalization
| Arguments in Favour | Arguments Against |
|---|---|
| Reduces pressure on criminal courts | Will weaken cheque as a trusted instrument |
| Encourages amicable civil settlements | Encourages wilful default |
| Supports business ease and entrepreneurship | No deterrence; leads to financial indiscipline |
| Criminal law misuse for civil debts | Cheques are used in genuine commercial contracts |
✅ 7. Conclusion
The decriminalization of cheque bounce is a complex issue involving a balance between:
Ease of doing business vs.
Financial discipline and deterrence.
Courts have acknowledged the civil nature of the wrong but have also emphasized that criminal prosecution under Section 138 acts as a powerful deterrent against fraud and default.
Rather than decriminalization, the **focus should be on:
Streamlining procedures,
Encouraging compounding,
Creating special benches or summary mechanisms.
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