Negotiable Instrument Act, 1881 regulates the different types of negotiable instruments. The objective of section 138 of negotiable instruments Act is to promote the efficiency of banking operations and to ensure credibility in transacting business through cheques.

What are Negotiable Instruments?

These are simply any written document which is transferable on delivery. 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”.
Read full article…

Section 138

  • This act states 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.
  • This is also a non-cognizable offence.
  • According to Section 138, 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.

Provided that nothing contained in this section shall apply unless:

  1. the cheque has been 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;
  2. the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque,

[Within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

  1. The drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.”

Decriminalizing Section 138 (Review & Reform)

In June 2020, the Finance Ministry in the Government of India proposed the decriminalization of a number of white-collar crimes, including cheque bouncing under Section 138 of the Negotiable Instruments Act, in order to improve the ease of doing business as well as to reduce imprisonment rates. The proposal has been opposed by a number of trade and business associations, including the Confederation of All-India Traders (CAIT), the Indian Banks’ Association and Finance Industry Development Council (FIDC), and the Federation of Industrial and Commercial Organization (FICO).

There is no doubt that it will bring an ease to the business but on the other hand it has some bad impact on the business sector as well for example the creditors will lose the credibility in transactions through cheques. The main idea behind the proposal it is the ease of business and attracting investors.


Section 138 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.

Read also…
Banking Awareness Important Topics

Leave a Reply

Your email address will not be published. Required fields are marked *