Negotiable Instruments Act Sees Dramatic Decline in Cases

NEW DELHI: National Crime Records Bureau (NCRB) data for 2024 reveals that only 18 cases were registered under the Negotiable Instruments Act nationwide, all pertaining to cheque bounce, and spread across only two states, Jharkhand (10 cases) and Uttar Pradesh (8 cases). The low number of cases raises questions about the Act, as it is one of the oldest commercial laws in the country and yet is fading into irrelevance.

What is the Negotiable Instruments Act, 1881?

The Negotiable Instruments Act, 1881 is a central legislation that regulates and defines negotiable instruments used for making and receiving payments in trade or commerce. A negotiable instrument is a written document that guarantees the payment of a specific amount of money, either on demand or at a fixed future date, and can be freely transferred from one person to another.

The NCRB's 2024 data shows that across 28 states and 8 union territories, only 18 cases were registered under the Negotiable Instruments Act out of which 10 in Jharkhand and 8 in Uttar Pradesh and all cases were about cheque bounce. Not a single case of promissory note fraud, bill of exchange disputes, or any other provision of the Act was recorded.

The Act mainly covers three financial instruments:

Promissory note: It is a written promise through which a person is bound to pay a fixed sum to another person

Bill of Exchange: This is a written order that directs a third party to pay a specific amount to a named person

Cheque: Works similarly to the bill of exchange but is drawn specifically on a bank

Of all three, the cheque is the most widely used and consequently the most litigated

The basic doctrine of the Act is to create a legal framework for financial transactions. It defines who can issue such instruments, how they can be transferred, and what the rights and liabilities of the drawer (the person issuing the cheque) to the drawee (the bank) and payee (the recipient) are. The Act further deals with what happens when instruments are dishonoured — when a cheque bounces or a bill is not accepted.

What is Section 138 and why it is the most used provision?

Section 138 of the Negotiable Instruments Act deals with the cheque bounce clause. According to the Section, the bouncing of a cheque is a criminal offence. It says that if an unpaid cheque is returned from the bank, which could be due to insufficient funds or account closure, then the person who issued that cheque can be criminally held liable. The provision says that the payee must send a legal notice within 30 days of receiving the bank's memo, the drawer then has 15 days to make the payment and if payment is still not made, the payee can file a criminal complaint in court within the next 30 days. The punishment under the Act is up to two years of imprisonment, a fine of up to twice the cheque amount, or both.