Proposed changes to the Negotiable Instruments Act: An Act of Fancy Footwork

Proposed changes to the Negotiable Instruments Act: An Act of Fancy Footwork
Cheque book

Vikas Dutta

On January 2 this year, the Negotiable Instruments (Amendment) Bill, 2017 was introduced in Parliament and is currently pending before the Lok Sabha. This proposed amendment is an attempt to discourage delays caused by seeking trial and filing of appeals without merit.

Many a time, such meritless challenges cause further financial constraints on a person who is seeking remedy against dishonoured cheques. To address these issues, there is a proposal to add two additional sections to the Negotiable Instruments Act, 1881.

This article is an attempt to evaluate recent developments and the proposed amendments to the Act. Besides, it will also assess if anything else is required to be done to ensure the sanctity of cheque transactions. Finally, the Article will conclude that these proposed amendments are part of constant attempt to align commercial interests on one hand and the compulsions and realities of society on the other.

Constant refining of provisions of the NI Act

No act or single provision of any statue has enjoyed more constant hand-holding from both the Judiciary and the Executive than Section 138 of the Act. The primariy reason for such an approach is the realisation on the part of both the Judiciary and the Executive that the relevance of the Act should not get diluted due to intricacies of the law.

We all know how swiftly Parliament had acted (for all good reasons) to the jurisdictional aspects after Dashrath Rupsingh Rathod. To bring home the point, the following are apt examples of the Judiciary doing its best to keep the relevance and urgency attached to the provisions of the Act:

In N Harihara Krishnan, the Supreme Court gave broader reach and interpretation to the Act by observing that the scheme of the prosecution under Section 138 of the Act is different from the scheme of the Code of Criminal Procedure, 1973. The Supreme Court observed that Section 138 creates an offence and prescribes punishment also. No procedure for the investigation of the offence is contemplated. It further noted that Parliament declared the procedure under Section 142, hence the provisions dealing with taking cognizance contained in the CrPC should give way to the procedure prescribed under Section 142.

The Supreme Court also observed that Section 142 of the Act opens as a non-obstante clause. In short, the Supreme Court held that the scope of Section 142 is more comprehensive than the provisions of the CrPC.

Another very interesting judgment was passed by the Supreme Court on May 05, 2017, in the Kumaran Case. The core issue in this case was when compensation is ordered as payable for an offence committed under Section 138 of the Act, and in default thereof, whether compensation is still recoverable after a jail sentence is prescribed and undergone. While deciding this issue, the Supreme Court held that the objection of legal fiction created by Section 431 is to extend for the purpose of recovery of compensation until such recovery is complete.

From the above, it is evident that courts are making a constant effort to keep the provisions of the Act aligned within the legal frame work, according to the need of the hour. Therefore, Courts are not shying away from giving a broader interpretation to various provisions of the Act. Now, it is the turn of the Executive to perform its part. Therefore, the proposed Bill is pending consideration.

Proposed Amendments

The Bill suggests the insertion of the following two Sections to the existing Act:

  1. Insertion of new Section 143A – Interim Compensation

Vide this non-obstante Clause, there is a proposal to add interim compensation up to 20 per cent of the cheque amount. This compensation is to be paid within sixty days from the date of order. Provided an accused can show sufficient cause for not paying the same, the court is given discretion to allow a further 30 days for such payment.

In case the person is finally acquitted, he is entitled to get the amount refunded within 60 days from the date of the order, with a similar 30 days grace period. As evident from the provision, there is a delicate balancing act between ensuring that a litigant should not be putting good money chasing bad, and discouraging frivolous and dilatory tactics.

The section further provides that in case an accused does not pay the amount despite an order to do so, the same is recoverable like a fine under Section 421 of the CrPC. Needless to say, this amount is adjustable from the final fine (under Section 138 of the Act) and compensation (under section 357 of CrPC) amount.


Section 143A as detailed above, provides 90 days (60+30) for making interim compensation. However, such timelines would delay the trial. This may result in possible conflict with the directions given by the Supreme Court in the Indian Bank Association CaseThat judgment states,

The court concerned must ensure that examination-in-chief, cross-examination and re-examination of the complainant must be conducted within three months of assigning the case. The court has the option of accepting affidavits of the witnesses instead of examining them in the court. The witnesses to the complaint and the accused must be available for cross-examination as and when there is the direction to this effect by the court.”

Though it can be argued that it is not stricto sensu in violation of the above direction, this proposed amendment is making an interim provision which mandates 90 days compliance. Therefore, it is suggested that there should be alignment concerning prescribed timelines.

2. Insertion of new Section 148-Deposit for filing Appeal:

This section also has a non-obstante clause, providing that when an accused person presents an appeal against conviction under Section 138, the appellate court may order the appellant to deposit such sum which shall be minimum of twenty per cent of the fine (under Section 138 of the Act) and compensation (under section 357 of CrPC) awarded by the trial court.

First, the provision says “may” and secondly, it provides a “minimum of twenty percent”. On the one hand, these two discretionary placeholders propose broader discretion to the court concerned, which in turn can modify directions depending on the facts and circumstances of each case. But on the other hand, there is a strong possibility of further challenges against the use of such discretionary relief, which in turn will increase disposal time and cost.

There is another facet attached to such a situation. As the onus to prove himself innocent is upon the accused under the Act, at times the strategy deployed by an accused person is to prolong administration of justice by filing more interlocutory and appellate applications/petitions. Therefore, there is a strong possibility of misuse of an otherwise well-intentioned provision.


Instead of giving discretionary powers which may cause more harm than good, Parliament should have an extensive debate and should propose a fixed percentage instead of a discretionary one. Such an effort will keep the possibility of dilatory tactics to a minimum.

A Fine Balancing Act

So what balance should be sought? We can find the answer to this question in the following two Supreme Court judgments:

In the Goa Plast case, the Supreme Court beautifully set the objectivity and urgency requisite around Section 138 of the Act in following words:

“The object and the ingredients under the provisions, in particular, Sections 138 and 139 of the Act cannot be ignored. Proper and smooth functioning of all business transactions, particularly, of cheques as instruments, primarily depends upon the integrity and honesty of the parties. In our country, in a large number of commercial transactions, it was noted that the cheques were issued even merely as a device not only to stall but even to defraud the creditors…

…Undoubtedly, dishonour of a cheque by the bank causes incalculable loss, injury and inconvenience to the payee and the entire credibility of the business transactions…Parliament, in order to restore the credibility of cheques as a trustworthy substitute for cash payment enacted the aforesaid provisions. The remedy available in a civil court is a long-drawn matter and an unscrupulous drawer normally takes various pleas to defeat the genuine claim of the payee.”

Another judgment which deserves mention is the decision of the Supreme Court in Priyanka Nagpal. This case is a perfect example of a balancing act on the part of the Supreme Court. In this case, the lower court, the Sessions Court and the Delhi High Court while adjudicating Criminal Revision, concurrently held the accused to be guilty under Section 138.

Without interfering with the concurring findings of the lower courts, the Supreme Court took note of the fact that the accused is only 24 years of age and sole bread earner of the family. She was earning a meagre Rs. 4,000 per month, and there was a possibility that she would lose her job if she was asked to undergo imprisonment.

The Court held that the lower courts should have considered these facts, and accordingly modified the order of simple imprisonment. In lieu thereof, an additional compensation amount of Rs. 50,000 was directed to be paid.


From the above discussion, it is evident that the road ahead concerning the Act and proposed amendments involves realising social and commercial realities of India. At times, Courts have to perform a fine balancing act while deciding such situations, because these are financial crimes, which are serious but not heinous.

Therefore, lawmakers should maintain objectivity and keep the social fibre in consideration while deciding such cases. At the same time, they must be sensitive to whether a person is a hardened criminal or a habitual offender or constrained by circumstances.

The Author is a Corporate Commercial Litigator and is working as Litigation Partner in Kapil Sapra & Associates.

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