The purpose of introducing Section 138 was to encourage and promote the usage of cheques for making payment instead of cash. There is the possibility of a person making cheque payment with a view to cheat the recipient, which discourages usage of cheques. To overcome the situation, Section 138 declares dishonour of cheques for insufficiency of funds as an offence. First of all, giving cheques with dishonest intention of cheating, that is, knowingly issuing cheques without having sufficient bank balance can be covered by Section 420 of Indian Penal Code. There is no need to have separate Section 138 under NIA. Nonetheless, making special provision in NIA has proved to be more effective than the comparable provisions in the IPC.

The crux of the matter is that there has to be dishonest intention or cheating. Such intention can exist in respectof cheques due for payment immediately after issuing the same. In this background, it has to be examined as to whether the purpose and object of Section 138 is truly applicable in respect of post-dated cheques. The practice of issuing post-dated cheques, payable may be even after five years cannot be overlooked in this regard. The correctness of this practice is a different matter. When the cheque is issued payable after long period, it is very difficult to attribute the dishonesty in the case of dishonour vis-a-vis the cheque issued for the immediate payment. This matter ought to have been dealt with either in the legislation or in judical pronouncements thereon.

Unfortunately, this does not seem to have happened. Enforcing Section 138 in respect of post-dated cheques is not only against the spirit of the said Section but also causes unintended adverse effects to third parties. The person may be in sound financial position at the time of issuing the cheques, but when cheques fall due for payment, thefinancial position of the issuer may be different owing to unforeseen circumstances. If under the coercion of Section 138, the issuer is made to pay the amount to cheque holders, it amounts to giving priority to such payments over the other secured and unsecured creditors, statutory dues, labour payments. Such priority is neither intended and nor fair to other claimants.

The Supreme Court had an occasion in the past to consider the nature of post-dated cheques under NIA and it was held that the instrument is Bill of Exchange till the date of cheque is reached and it is a cheque only from the date of cheque. This decision of Supreme Court may be invoked as defence against action u/s 138 in respect of post-dated cheque in as much as at the time of issue of cheque it is not a cheque but it becomes one only on the date of cheque.

The Supreme Court has observed in the recent past that if before presenting a cheque, a notice is given by issuer for stop payment/non-presentation, then it will not attract Section138. The proposition that there has to be overtly criminal intention in issuing cheque which is dishonoured, seems to have influenced the above observation by the Supreme Court. But the said logic has far stretched itself defeating the purpose of Section 138. This observation has been overruled subsequently by the larger bench of the SC. It is suggested that applicability of Section 138 should be restricted to cheques payable immediately or within reasonable time from the time of issue. This will avoid distortion that takes place in respect of cheques which are payable even after five years.

In the latest judgement of the Supreme Court on the said section, it has been held that the provisions of the said section can be availed of only in respect of first dishonour. In other words if the cheque is represented after mutual discussion between the parties and dishonoured again, the limit of period applicable for taking action is to be reckoned only from the first dishonour. The logic of this judgement can bethat the criminal action has to strictly comply with the technical requirements as distinguished from civil action.

There is another aspect of Section 138. The criminal compliants are filed with view to bring pressure for getting payment rather than getting offender punished. In this process, lot of public money is wasted.

It is suggested that once a complaint is filed, the courts should not be permitted to take cognizance of payments by the accused. For withdrawal of complaints, the complainant should be put to heavy cost. The complainant should not be paid out of fine levied if any. For recovery of amount, complainant should have only option of civil suit and criminal case should be only for punishing the offender. For negotiations, settlement and payment pursuant to settlement reasonable time should be allowed instead of the present 30 days.