All NotesCivil LawNegotiable Instruments Act, 1881

Negotiable Instruments Act, 1881

Section 138: Origin, Object and Nature of the Offence

For a century after 1881, the holder of a bounced cheque had only a civil remedy: a suit for recovery that could take years. Cheques were therefore accepted with hesitation, and dishonest drawers had little to fear. In 1988 Parliament added Chapter XVII to the Act, making the dishonour of a cheque for want of funds a criminal offence. Section 138 has since become one of the most litigated provisions in Indian law. This note explains why it was enacted, how the courts understand its nature, and how the chapter is organised.

1. Enactment

  • Amending Act: the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 inserted Chapter XVII, originally Sections 138 to 142.
  • Commencement: Chapter XVII came into force on 1 April 1989.
  • Later additions: Sections 143 to 147 (2002), Section 142(2) and 142A (2015), and Sections 143A and 148 (2018) (Topic 2).

2. Object

The Statement of Objects and Reasons explained that the new chapter was meant to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable to penalties where a cheque bounces for want of funds, while giving honest drawers a chance to pay. The Supreme Court has repeatedly described the object as inculcating faith in the efficacy of banking operations and credibility in transacting business through cheques.

📖 Electronics Trade and Technology Development Corporation v. Indian Technologists and Engineers (Supreme Court, 1996)

Held: Section 138 was introduced to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable instruments. (Its further view that a cheque dishonoured on the drawer's stop payment instruction falls outside Section 138 was overruled in Modi Cements v. Kuchil Kumar Nandi, 1998; Topic 42.)

3. Nature of the Offence

  • A regulatory offence with a compensatory core: the offence was created to protect the payee and the banking system. The Supreme Court has said that it is primarily a civil wrong, with a punitive element mainly to enforce the compensatory purpose, and that courts should encourage early settlement and compounding (Meters and Instruments v. Kanchan Mehta, 2018).
  • Strict elements, protective safeguards: the offence is complete only when the drawer fails to pay within 15 days of notice. The honest drawer who pays in time commits no offence.
  • Presumptions in the payee's favour: Sections 139 and 140 shift the burden to the accused (Topic 45).
  • Vicarious liability: Section 141 extends liability to those in charge of companies and firms (Topic 46).
  • Compoundable: the offence is compoundable at any stage (Section 147; Topic 51).

4. The Scheme of Chapter XVII

  • Section 138: the offence (Topics 42 to 44).
  • Sections 139 and 140: presumption of debt; no defence that the drawer did not expect dishonour (Topic 45).
  • Section 141: offences by companies and firms (Topic 46).
  • Section 142: cognizance on written complaint within one month, by a Metropolitan Magistrate or Judicial Magistrate First Class, and territorial jurisdiction (Topics 47 and 48).
  • Section 142A: validation of transfer of pending cases (Topic 48).
  • Sections 143 to 147: summary trial, service of summons, evidence on affidavit, bank slips as evidence, compounding (Topics 49 and 51).
  • Sections 143A and 148: interim compensation and appeal deposit (Topic 50).

5. The Problem of Volume

Section 138 cases form a very large part of the criminal docket of magistrates' courts. In Sanjabij Tari v. Kishore S. Borcar (Supreme Court, 2025), the Court noted that over 6.5 lakh such cases were pending in the district courts of Delhi alone. The Supreme Court has responded through a series of directions: the Damodar S. Prabhu guidelines on compounding (2010), the suo motu proceedings on expeditious trial (2021), and the Sanjabij Tari guidelines (2025) on electronic service of summons, online payment, complaint synopses and revised compounding costs (Topics 49, 51 and 60).

⚠ Note

Proposals to decriminalise Section 138, floated by the Central Government in 2020 among minor economic offences, were not pursued after objections that they would weaken the credibility of cheques. The debate is discussed in Topic 61.

⚠ Key point

Chapter XVII, inserted by the 1988 amendment and in force from 1 April 1989, made dishonour of a cheque for insufficiency of funds an offence, to enhance the acceptability and credibility of cheques and faith in banking (Electronics Trade and Technology Development Corporation, 1996). The offence is primarily compensatory in character, with punishment serving to enforce payment (Meters and Instruments, 2018); it is complete only on failure to pay within 15 days of notice, backed by presumptions (Sections 139 and 140), vicarious liability (Section 141), special procedure (Sections 142 to 147) and interim compensation and appeal deposit (Sections 143A and 148). Heavy pendency has led to repeated Supreme Court guidelines, most recently in Sanjabij Tari (2025).

6. Related Topics and Provisions

  • History and amendments (Topic 2)
  • Ingredients of the offence (Topic 42)
  • Compounding (Topic 51)
  • Evaluation and reform (Topic 61)