The Union Ministry of Finance’s proposal of 8 June 2020 sought to treat cheque dishonour as a civil matter rather than a criminal offence.
by Adv. Dr. Chinmay Bhosale · 5 MINS READ
Presented as a measure to improve the ease of doing business, the proposal raised an important question: would removing criminal liability weaken the protection available to ordinary citizens and businesses awaiting legitimate payments?Presented as a measure to improve the ease of doing business, the proposal raised an important question: would removing criminal liability weaken the protection available to ordinary citizens and businesses awaiting legitimate payments?
The consequences extend beyond commercial convenience. A dishonoured cheque may represent money needed to sustain a household, pay for a child’s education or meet medical expenses. Any change to the law must therefore be examined in light of its practical impact on those entitled to receive payment.
Why Cheque Dishonour Attracts Criminal Liability
Cheque transactions in India are governed by the Negotiable Instruments Act, 1881. Section 138 provides for criminal liability in cheque dishonour cases covered by that provision.
The provision was introduced through the 1988 amendment and came into force on 1 April 1989. Its purpose was to encourage the use of cheques and prevent the withholding of money legally payable to individuals and businesses.
The large number of pending cheque dishonour cases illustrates the continuing problem of unpaid dues. Before removing criminal liability, it is essential to consider why this protection was introduced and whether the circumstances that justified it have materially changed.
The Proposal to Remove Criminal Liability
On 8 June 2020, the Ministry of Finance proposed decriminalising cheque dishonour as part of its ease-of-doing-business initiative.
The proposal characterised such conduct as a “minor economic offence” and suggested that criminal sanctions could discourage domestic and foreign investment. It sought to remove the criminal character of certain provisions under the Negotiable Instruments Act and 18 other laws, on the basis that imprisonment for such offences adversely affected the business environment.
If accepted, the proposal would shift cheque dishonour disputes from criminal proceedings to civil remedies. This would have significant implications for ordinary citizens and traders seeking payment.
What the Pending Cases Reveal
The scale of pending litigation provides important context.
According to the Law Commission’s 213th Report, approximately 40 lakh cheque dishonour cases were pending in 2008. The total number of cases pending across courts that year was approximately 1.8 crore, meaning cheque dishonour matters accounted for more than 20% of the overall backlog.
For 2020, the article cites National Judicial Data Grid figures placing the total number of pending cases at approximately 3.3 crore. It also refers to more than seven lakh cheque dishonour cases awaiting adjudication.
The law concerns legally enforceable debts and liabilities; it does not extend to transactions outside the legal framework. The persistence of so many disputes therefore raises concerns about the withholding of money lawfully due.
Improving Business Conditions Through Faster Justice
A favourable environment for trade and industry is undoubtedly necessary. However, prolonged litigation and delayed decisions are themselves major obstacles to business.
A more effective response would be to strengthen the institutions responsible for resolving disputes. The Ministry of Law and Justice could establish fast-track courts, supported by adequate funding from the Ministry of Finance.
Investment in judicial infrastructure would help judges and litigants secure quicker resolution of disputes arising from financial transactions. This would promote business confidence while preserving citizens’ rights.
The central issue is whether the ease of doing business should be pursued by weakening legal protection or by making the justice system work more efficiently.
A Dishonoured Cheque Is Not Always a Minor Matter
The amount represented by a dishonoured cheque may be vital to the recipient. For an individual or small business, it could provide financial support for an entire year. It may also be needed for education or medical treatment.
Against that background, describing cheque dishonour as a minor economic offence risks overlooking the seriousness of its consequences.
Removing criminal liability also raises practical concerns about recovery. Would an ordinary trader still be able to obtain money lawfully due from a defaulting party, particularly a large corporate group? Would cheques continue to command the same confidence as a means of payment?
These questions must be addressed before an existing safeguard is removed.
Whose Interests Would the Change Serve?
The proposal requires careful scrutiny of both its stated purpose and its likely beneficiaries.
Would it serve ordinary citizens and the wider economy, or primarily benefit powerful business groups? Would it improve payment practices, or make it easier to withhold legitimate dues?
The author’s concern is that changing the law could deprive ordinary people of an important protective mechanism while favouring large businesses. Measures to encourage enterprise should therefore be assessed alongside their effect on those who depend on timely payment.
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