Evaluation and Reform of the Negotiable Instruments Act, Including the Decriminalisation Debate

The Negotiable Instruments Act has served India for more than 140 years. Its civil provisions, drafted for a world of paper bills and sea voyages, have barely changed; its criminal provisions, added in 1988, have been amended repeatedly and have generated an enormous volume of litigation. Meanwhile, digital payments have overtaken cheques. This concluding note evaluates the Act, examines the debate on decriminalising Section 138, and surveys the reforms proposed by Parliament, the courts and commentators.

1. What the Act Has Achieved

• Durable codification: a clear, comprehensive code of the law merchant that predates the English Act and still governs notes, bills and cheques with little amendment.
• Coexistence with custom: the saving for hundis allowed indigenous banking to continue alongside the statute (Topic 5).
• Credibility of cheques: Chapter XVII made the cheque a reliable instrument of payment and security in everyday commerce (Topic 41).
• Adaptation: recognition of truncated and electronic cheques (2002), the payee-centred jurisdiction rule (2015), and interim compensation and appeal deposits (2018).

2. The Problems

• Pendency: in 2020, commentators estimated about 40 lakh cheque cases pending, roughly a fifth of pending criminal cases; in 2025, the Supreme Court noted over 6.5 lakh in Delhi's district courts alone (Sanjabij Tari).
• Criminal law as a debt collector: lenders and businesses routinely take post-dated and security cheques so as to have a criminal remedy, which critics say turns magistrates into recovery agents.
• Delay despite summary procedure: summary trial, affidavit evidence and a six-month target have not prevented trials lasting years; conversion to summons trials, absent accused and service problems are common causes.
• Shifting jurisdiction rules: the swing from K. Bhaskaran to Dashrath Rupsingh Rathod to the 2015 amendment caused mass transfers of cases.
• Multiplicity: separate complaints for each cheque in one transaction multiply litigation (Sumit Bansal, 2026).
• Outdated civil provisions: days of grace, noting and protest, bills in sets and acceptance for honour are rarely used, while the Act says nothing of UPI and other digital payments.
• Gaps: no statutory account payee rule, no fictitious payee rule, and collecting bank protection only for crossed cheques (Topic 57).

3. The Decriminalisation Debate

On 8 June 2020, the Department of Financial Services sought public comments on a proposal to decriminalise 39 minor economic offences, the most significant being Section 138, as part of measures to help businesses and reduce the burden on courts. The proposal drew strong objections and was not pursued. The Jan Vishwas Acts of 2023 and 2026, which decriminalised or rationalised offences under many central Acts, did not amend the Negotiable Instruments Act.

Arguments for decriminalisation

• The offence is essentially a civil dispute about money; the Supreme Court itself has called it primarily compensatory.
• Criminal prosecution of honest debtors in genuine financial difficulty is disproportionate.
• It clogs criminal courts and diverts magistrates from serious crime.
• Faster civil and summary remedies, with attachment and interest, would serve creditors better.

Arguments against

• The threat of prosecution is what makes cheques credible; removing it would restore the "debtor's paradise" that existed before 1988.
• Civil suits in India are slow and expensive; small creditors would be left without an effective remedy.
• Section 138 already protects honest drawers through notice, the 15-day window and compounding.
• Reforms within the criminal framework, such as interim compensation, graded costs and electronic service, are reducing delay.

4. Reforms Through the Courts

• Law Commission: the 213th Report (2008) recommended fast-track magisterial courts for dishonoured cheque cases.
• Indian Bank Association v. Union of India (2014): directions on same-day scrutiny, electronic summons and summary trial.
• Meters and Instruments (2017): emphasis on settlement and closure on payment.
• In re Expeditious Trial (2021): Constitution Bench directions and the Justice R.C. Chavan Committee, appointed in March 2021 to recommend measures for speedy disposal.
• Sanjabij Tari (2025): online payment, electronic summons, complaint synopses, revised compounding costs, evening courts and dashboards.

5. Proposals for Further Reform

• One trial for all cheques between the same parties within twelve months, as the Constitution Bench recommended.
• Pre-litigation mediation and Lok Adalats before or soon after filing, with online payment of the cheque amount.
• Online dispute resolution and e-courts for the routine stages of summons, appearance and plea.
• Graded approach: treating small-value or first-time dishonours differently, for example by fine-only procedures.
• Civil modernisation: a statutory account payee rule, a fictitious payee rule, protection for collecting banks on uncrossed cheques, and removal of obsolete provisions such as days of grace.
• Digital payments: a coherent framework for dishonour of UPI, NACH and other electronic payments, building on Section 25 of the Payment and Settlement Systems Act (Topic 52).
• Insolvency clarity: a legislative answer to the interaction between Section 138 and IBC moratoria (Topic 53).

6. Related Topics and Provisions

• History and amendments (Topic 2)
• Origin and object of Section 138 (Topic 41)
• Electronic payments (Topic 52)
• Landmark judgments (Topic 60)