Cheque dishonour occurs when a cheque is returned unpaid due to insufficient funds or other reasons. Section 138 of the Negotiable Instruments Act, 1881 criminalises such dishonour under certain conditions. This has made cheque dishonour one the most litigated forms of financial offence in India with millions of pending cases in front of the courts today. Cheque dishonour was introduced as part of an amendment in 1988 to enhance the credibility of cheques and ultimately prevent payment defaults. Over time, concerns surrounding strict liability, excessive criminalisation of commercial disputes and increasing backlogs in the judicial system have arisen. Many legal scholars, policymakers and institutions including the Supreme Court of India and the Reserve Bank of India have been debating whether criminal prosecution continues to be an appropriate way to deal with bounced cheques. This article examines the legal framework and jurisprudential foundation of criminalising bounced cheques in India. Additionally, this paper looks at the current policy discussion regarding possible reforms. This study follows a doctrinal legal approach to determine the compatibility of Section 138 with important principles of criminal jurisprudence including mens rea, proportionality and restorative justice; however, this paper concludes that criminal liability for cheque dishonour should only apply to cases that involve fraud or intentional deception. Ordinary disputes over cheque dishonour should be handled through civil or administrative means. This study proposes a Hybrid model that includes civil remedies, administrative sanctions, and institutional reform through the creation of Financial Tribunals and the use of Mediation and Online Alternative Dispute Resolution (ADR).