SHOULD SECTION 138 OF NI ACT BE DECRIMINALISED?

Section 138 of the Negotiable Instruments Act, 1881, criminalises the dishonour of cheques due to the insufficiency of funds, deviating from the civil character of the provision, due to an increase in the frauds and dishonesty in the issuance of cheques. This paper analyses the ingredients of Section 138 of the NI act and examines the particular grounds of cheque bounce that attracts a criminal penalty. It also explores a few more provisions of the NI Act in support of Section 138. Further, this paper undertakes a comparative analysis between India’s approach to such cases and US, UK and the United Arab Emirates, wherein these countries have adopted the civil liability rather than the criminal approach. It also assesses various amendments to the act and judicial precedents that state that the courts have a lot of case backlog that can be attributed to Section 138 of the NI Act. The paper ultimately concludes that it might be worth considering decriminalising Section 138, consistent with global framework, and increase the ease of doing business without comprising the credibility of the financial instrument.