Negotiable Instruments Act 1881 was promulgated to regulate the different types of negotiable instruments like Promissory notes, Bills of Exchange and Cheques etc. Basically, any written document which is transferable on delivery will broadly fall under the umbrella of Negotiable Instruments.
Section 138 of this Special Act talks about punishment when cheques are dishonoured. It is important to note here that only those cheques which are given in pursuance of any ‘Debt’ and/or ‘liability’ when dishonoured will come under the purview of punishment as prescribed under section 138 of NI Act.
However, section 138 of NI Act was not part of the initial act and this section has been brought in by an amendment in the year 1989 with the primary motive to encourage credibility and usage of cheques in business transactions and to strengthen the economy. To repose faith in the person receiving the cheque when presented for encashment, if dishonoured he/she will have the right fo prosecute the offender who issued the cheque in bad faith.
On 8 June, 2020 the Ministry of Finance proposed decriminalizing various minor offences “for improving business sentiment and unclogging court processes”, which also includes Section 138 of Negotiable Instruments Act, 1881. We must not forget that section 147 of NI Act makes all offences under NI Act compoundable offences.
Hon’ble Supreme Court in “M/s New Win Export & Anr. V. A. Subramaniam” (Cri Appeal no. 2948/2024) has passed an order dated 11.07.2024, wherein the Hon’ble Apex Court has expressed the principles of compounding in the context of NI Act. The bench presided by HMJ Sudhanshu Dhulia and HMJ Ahsanuddin Amanullah has stated that “the offence of dishonour of cheques is a merely a regulatory offence which was made an offence only in view of public interest so that the reliability of these instruments can be ensured.” With the present scenario of heavy pendency and backlog in judicial cases, it is an advisable and welcoming path to compound cases where the offending party has paid his share of debt and/or liability to the complainant of the said 138 NI case. The Hon’ble Supreme Court has urged the courts below to “keep in mind the compensatory aspect of the remedy of 138 NI Act and that the same will have priority of the punitive aspect of the section.”
This direction, if followed diligently by the Courts below, will act as a breath of fresh air as the cases where parties are settling can be compounded with the permission of the Court will help in clearing backlog of the pending cases thus reposing faith in the public eye.
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