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The statement released by Ministry of Finance on 8th June, 2020 has proposed to decriminalize a number of economic offences and one of such offences is the offence under Sec 138 of Negotiable Instruments Act, 1881 for dishonor of cheque.

The Ministry has invited comments of stakeholders latest by June 23, 2020 on the decriminalization of 19 legislations as proposed.


The uncertainty and tedious resolution of legal proceedings has disturbed the ease of doing business in the country. In order to resolve this issue of ambiguity and pendency of suits in all courts, the government is inclined towards having a balanced legislation. In the new legislation, the offences which are less serious in nature shall be compounded together and the criminals having a mala fide intention shall be punished as well.

Criminal penalties for minor offences inclusive of punishment of imprisonment turns out to be foremost reason why both domestic and foreign investors refrain from investing in India. Thus, government has constantly been longing on having an apposite measure to reinstate the trust in doing business.

Moving forward with the objective of ‘Sabka Saath, Sabka Vikas and Sabka Vishwas’, the government has taken the significant step of decriminalization of minor offences and has expected the same to provide ease in doing business in the long run. It is also expected to improvise the tedious system of legal proceedings.


Various sections of different laws have been brought under the ambit of this notification in order to encourage businesses swiftly drift over the catastrophe caused by the pandemic outbreak. These legislations are as follows:

1. Insurance Act 1938 (Section 12)

2. SARFAESI Act 2002 (Section 29)

3. PFRDA Act, 2013 ( Section 16(7) and 32(1)

4. RBI Act, 1934 (Section 58B)

5. Payment and Settlement Systems Act, 2007 (Section 26(1) and 26(4)

6. NABARD Act, 1981 (Section 56(1)

7. NHB Act, 1987 (Section 49)

8. State Financial Corporations Act, 1951 (Section 42)

9. Credit Information Companies (Regulation) Act, 2005 (Section 23)

10. Factoring Regulation Act, 2011 (Section 23)

11. Actuaries Act, 2006 (Section 37)

12. Banking Regulation Act, 1949 (Section 36AD(2),and 46)

13. General Insurance Business (Nationalisation) Act, 1972 (Section 30)

14. LIC Act, 1956 (Section 40)

15. Banning of Unregulated Deposit Schemes Act, 2019 (Section 21)

16. Chit funds Act, 1982 ( Section 76)

17. DICGC Act, 1961 (Section 47)

18. Negotiable Instruments Act, 1881 (Section 138)

19. Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (Section 4 and 5).


Based on the feedback received through comments from State Governments, Union Territory Administrations, civil societies, academicians, public and private sector organizations and members of the public, the Ministry shall decide which specific sections should remain as a criminal offence attracting penalty and which one should be altered to be decriminalized in order to improve the ease of doing business in India.

The Ministry suggested that due to increase in burden on businesses because of non-compliances and minor lapses in criminal proceedings, certain principles should be kept in mind while re-looking at the provisions and reclassifying them as compoundable offences which are merely procedural in nature and have no effect on national security or public interest at all. These principles are as follows:

1. Mens rea (malafide/ criminal intent) plays an important role in imposition of criminal liability, therefore, it is critical to evaluate nature of non-compliance, i.e. fraud as compared to negligence or inadvertent omission;

2.The habitual nature of non-compliance;
Decrease the burden on businesses and inspire confidence amongst investors; and

3. Focus on economic growth, public interest and national security should remain paramount.


Section 138 of Negotiable Instruments Act, 1881 governs cheque bounce matters due to insufficiency of funds in the bank account. The provision provides that any person who has committed an offence under Section 138 the offence shall be imprisoned for a term which may extend up to 2 years or with fine which may extend to twice the amount of the cheque amount, or with both. The section is one of the most common provisions invoked by lender in the event of default due to dishonor of cheque.

However, on one hand the government has tried inserting Section 143, 148 to name a few in the NI Act to make it more operative for providing redressal and on the other hand, the government is trying to dilute the act by decriminalizing the provision.

Co-Chairman of Bar Council of Delhi, Mr. Sanjay Rathi, issued a letter recently to Smt. Nirmala Sitharaman, Union Minister of Finance, Government of India stating that the Bar Council of Delhi strongly opposes the decriminalization of provisions of the legislations as put forward by the notification.

The statutory body representing lawyers, referred the 213th Law Commission Report along with Sec 138 of NI Act and a few recent databases and mentioned that a certain stipulated percentage of litigation pending in the courts comprise of cheque dishonor cases. The notification regarding decriminalization would certainly aid in brining down the chart regarding number of cases but would never serve the main object of Section 138 of the NI Act.

Adding to this, Bar Council of India’s Member Mr. Ved Prakash Sharma has said in his statement via his Social media handle that the Bar Council of India will oppose the action of government regarding decriminalizing the particular sections through a General Council meeting to be held on 14th June, 2020.

The action put forward by the government is self-contradictory. Even though this step will definitely attract a number of investors, provide relief to those who considered this criminal liability as a big concern and will help in reviving the economic growth post COVID 19 but this could also lead to a situation where there would be fear of criminal litigation and imprisonment in the minds of the perpetrators committing such offences.

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April 2024