The ongoing pandemic has left the entire world, especially the economy of every country at a standstill. Every type of economic activity is at pause but this is no excuse for a bank to stop working. Banks play a crucial role in a country’s cash flow. But they too can’t make cash flow with every other factor like business or trade being paused. However, it’s the duty of the banks to act in the benefit of its customers. The RBI announced a three-month EMI holiday on all term loans, which means that the borrower need not repay his monthly share of loaned amount during the mentioned period. Every deal with a bank is based on numerous agreements and documents. Failure to comply with the rules of the agreement will count as an offence and lead to court proceedings. It is also not fair to ask the customers to adhere to all the rules in this prevailing situation. As a remedial measure to this situation, the Union Finance Ministry had proposed and sought suggestions on decriminalizing 39 sections dealing with economic offences of 19 acts, making them only a civil offence including the Section 138 of the Negotiable Instruments (NI) Act, 1881. Out of all the acts proposed to amend, this section from the NI Act is more important and deserves attention.
2. Section 138 Of The Negotiable Instruments Act, 1881
The 138th section was made a criminal offence only through an amendment in the year 1989. The section says – Where any cheque is drawn by a person to another person in order to clear the debt or liability on whole or instalments, is returned by the bank without paying due to insufficiency of funds in the account or the amount exceeds the overdraft limit, will be considered to have committed an offence and can be punished up-to two years of imprisonment or with fine or with both, without being prejudiced by any of the sections of the act. The section from not only making it a criminal offence has also given a set of conditions which needs to be fulfilled to invoke a case under Section 138.
The conditions are –
- The cheque has to be presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;
- when the cheque is returned unpaid, the payee or the holder in due course of the cheque, should make a demand for the payment of the said amount of money by issuing a notice in writing, to the drawer of the cheque, within 30days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
- The drawer of such cheque should have failed to make the payment of the said amount of money to the payee or to the holder in due course of the cheque, within 15 days of the receipt of the said notice.’
This section allows a case of bounced cheque to be preceded both under civil and criminal courts. While civil proceedings are the general remedy to a financial case, criminal proceedings imbibe a fear of prison in the minds of those who default to clear the debts or liabilities on time. The civil and criminal remedies are not mutually exclusive but are co-extensive. The Delhi District Court held that a suit under OXXXVII of the Code of Civil Procedure 1908, for the cheque amount to be recovered and a complaint under Section 138 where imprisonment and fine can be imposed is not a case of double jeopardy. Only the legally enforceable debts and liabilities are dealt with in this section.
2.1. Reasons for Dishonour
To file a complaint under Section 138, the reasons, as given by the provision should be
- Due to insufficiency of funds in the drawer’s account or
- Due to the amount exceeding the overdraft facility.
It is a general rule of interpretation that all penal statutes and provisions must be strictly interpreted. But with concern to this provision the courts moved from strict and literal interpretation to Heydon’s rule of Interpretation, ‘suppress the mischief and advance the remedy’. It is because not all cases fell under the two of the conditions provided by the section. The division bench of Kerala High Court held that when the scheme and object of a statue is likely to be defeated by strict interpretation, the courts just endeavour to an interpretation that furthers the object of the legislation. The guiding criterion is not the wording of the drawee bank’s endorsement while returning the cheque unpaid but the fact that on presentation the cheque was not paid. A division bench of Madras High Court stated that the reasons given by bank for dishonor may not at all reflect the reality of the situation. Insufficiency of funds is indicated with various wordings. And it was settled that the endorsement given by the bank is not the determining factor and strict interpretation is not required.
2.3. Mens Rea
Section 140 says that the accused cannot take a plea on his defense that when he issued the cheque, he had no reason to believe that the cheque would be dishonored on being presented. This section makes it clear that mens rea is ousted as an ingredient to offence under Section 138. The presence of mens rea is a must for charging a person under any offence but it has been intentionally ousted by the legislature. This is because “The complainants interest lies primarily in recovering the money rather than seeing the drawer of the cheque in jail. The threat of jail is only a mode to ensure recovery”. Unlike Section 420 of IPC for offence of cheating, it is not essential that mens rea on the part of the drawer should be proved to fasten criminal liability on him under Section 138.
Complaints under this section flooded in courts and the time taken to finish off a case was lengthy. This also affected the courts by restraining it from handling normal criminal cases. This called for an immediate remedy. The legislature decided to amend the act aiming at early disposal of cases.
3.1. Negotiable Instruments (Amendment) Act, 2002
This amendment inserted sections 143- 147 of the Act. It also brought about a number of changes in the existing provisions. Some of them are :
- To increase the punishment under Section 138 from one year to two years.
- To increase the period for issue of notice by the payee to the drawer from 15 to 30 days.
- To provide for summary trial of the cases
- To make the offences compoundable.
- To make the Information Technology Act, 2000 applicable to this act, in relation to electronic cheques and truncated cheques.
3.2. The Negotiable Instruments (Amendment) Act, 2015
This amendment aims at clarifying the issues related to jurisdiction for filing a case under Section 138.
A case under this section can be tried only by a court within whose local jurisdiction –
- On presented for collection, the branch of bank where the payee maintains an account;
- On presented for payment, the branch of the drawee bank where the drawer maintains his account.
3.3. The Negotiable Instruments (Amendment) Act, 2018
This amendment has incorporated two provisions, namely Section 143A and Section 148. This is a step towards improving the efficiency and enhances trust in the Negotiable Instruments Act.
Section 143-A says that any court while trying a case under Section 138 of this act can direct the drawer to pay an interim compensation to the complainant not exceeding 20% of the amount given in the cheque. This has to be paid within 60 days from court’s order.
Section 148 says that on being convicted, if the drawer files an appeal, the appellant court has the power to order the drawer to deposit an amount. The amount should be a minimum of 20% of the fine or compensation awarded by the magistrate court in the appeal preferred against his conviction. However, if he gets acquitted the court shall order the complainant to repay the amount with interest.
Amendments were proposed and implemented but the only aim was to reduce time consumption and make the section more effective. None of the amendments proposed to decriminalise this section because it had piled up huge number of cases in the courts. This is a solid proof to prove the importance of the act and to be more specific, this section.
The All-India Bank Employees Association (AIBEA) has suggested that some limits be fixed for cheque bounce cases to attract criminal prosecutions and requested not to decriminalise it entirely. For individuals, if the returned cheque amount is Rs. 1 lakh or more and in case of companies, if the returned cheque amount is Rs. 10 Lakhs or more it should attract criminal offence as stated in Section 138. AIBEA has said that any dilution of these provisions would only facilitate increase in dishonour of cheques with criminal and motivated intentions as the fear of being punished is removed. The banks are also concerned that if this section gets decriminalized, then people will stop using cheques making it lose its worth and credibility. In that case, there will only be cash circulation in the economy which will be counterproductive to making India a cashless economy. This is of course a hard time for businesses to run normally but decriminalising a section that has the power to create trust between the lender and the borrower won’t improve the economy. Banks should refrain from stressing the borrower and should ease up the process of repayment according to the amount and situation. When this phase is through, the businesses would start functioning normally and the lenders will be able to recover their money as soon as possible.
 The Negotiable Instruments Act of 1881, Act No. 26, Parliament of India (1881).
 M/S. Medchl Chemicals & Pharma P v. M/S. Biological E. Ltd. & Ors., Special Leave Petition (Crl.) No. 1971 of 1999 (India).
 Avneet Food Products And Ors. v. Govt. Of Nct Delhi And Anr., 2003 114 CompCas 798 Delhi (India).
 Thomas Varghese v. P. Jerome, 1992 CriLJ 3080 (India).
 Rakesh Nemkumar Porwal v. Narayan Dhondu Joglekar, 1994 (3) BomCR 355 (India).
 J. Veeraraghavan v. Lalith Kumar, 1995 83 CompCas 853 Mad (India).
 Arun Mohan, Some thoughts towards law reforms on the topic of Section 138, Negotiable Instruments Act – Trackling an avalanche of cases, (New Delhi: Universal Law Publishing Co. Pvt. Ltd., 2009).
 Omanakuttan Pillai v. State Of Kerala, 2004 CriLJ 3453 (India).
 The Negotiable Instruments (Amendment) Act, 2002, Act No. 55, Parliament of India (2002).
 The Negotiable Instruments (Amendment) Act, 2015, Act No. 26, Parliament of India (2015).
 The Negotiable Instruments (Amendment) Act, 2018, Act No. 20, Parliament of India (2018).
 Don’t entirely decriminalise cheque bounce offences, AIBEA tells Finance Ministry, The Hindu Business Line (Jun 15, 2020), https://www.thehindubusinessline.com/economy/dont-entirely-decriminalise-cheque-bounce-offences-aibea-tells-finmin/article31833103.ece#.