Dishonour of a Cheque

The present article is written by Bhagyashikha Saptarshi, from 2nd year Amity Law School, Lucknow Uttar Pradesh, discussing about provisions under NI Act,1881 in case of dishonour of a cheque.


Dishonour of a cheque is secured under the Negotiable Instrument Act 1881. Now let’s first understand what’s the Negotiable Instrument Act and then proceed further.

As per Section 13 (1) of NI Act negotiable instrument” means “a promissory note, bill of exchange or cheque payable either to order or bearer”. In layman’s language it means a document transferable from one person to different. Now, the subsequent question which comes into mind is What’s a cheque? As per Section 6 of Negotiable Instrument Act, 1881 “A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.” 

Now let’s discuss the dishonor of a cheque. Dishonor of a cheque means when the drawee banker of the cheque refuses to honor or pay the amount as stated in the cheque”. 

Dishonor of cheque for insufficiency, etc. of funds in the account Section-138 states that, where any cheque drawn by an individual on an account maintained by him with a banker for payment of any measure of money to the other individual from out of that account for the discharge, entirely or in mostly , of any debt or other liability, is remitted by bank unpaid, either due to the measure of cash standing to the credit of the account is insufficient to honor the cheque or that it transcends the amount arranged to be paid from that account by an agreement made there with bank, such individual are going to be considered to have committed an offence and will, without being biased towards the other provision of this act be penalized with detainment for a period which can stretch to 2 years, or with fine which can stretch double the amount of the cheque or with both.

Ingredients to constitute an offence under this Section:

For the drawer to be penalized under Section- 138 following conditions must satisfy:
1. Issuing of the cheque for payment of money to an individual other than the drawer:

The cheque should be drawn for payment of money to an individual other than the drawer for the full or partial discharge of any legally enforceable debt or other liability.
2. Presentment of the cheque within six months:

The cheque must be shown to the drawee bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier.
3. The cheque must be returned unpaid: The cheque must be returned unpaid:

The cheque must be returned unpaid by the drawee bank either because of insufficiency of funds on the drawer’s account in question or because the cheque exceeds the amount
arranged to be paid from that account by an agreement made with the bank.
4. Request the drawer after dishonour of the cheque:

The payee or holder in due course of the cheque , as the case may be, must make a request for the payment of the amount of money as represented by the cheque by giving a note in writing to the drawer of the cheque, within 30 days of receipt of information by him from the bank regarding the return of the cheque as due.
5. Failure of the drawer to make payment of the dishonored cheque:

The drawer of the dishonored cheque must be failed to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within 15 days of the receipt of the said notice.
6. Written complaint to the proper legal authority:

A written complaint should be made to a first class judicial magistrate by the payee or the holder in the due course of the cheque within one month from the date on which the cause of action arose on the failure of the drawer to make payment of the dishonored cheque on demand. If no complaint is made within the said period by the payee in due course, no court shall take cognizance of the drawer’s offence committed under Section 138.

Liabilities on dishonor of cheque

1. Civil Liability:

According to Section 138 of the NI Act, civil liability is applied when the fine is being imposed which is double the amount of dishonored cheque. However, if the recipient files a suit under Order 37 of CPC, 1908, the decision will be in favor of the recipient and  the drawer should pay the amount as per the court order.
2. Criminal Liability:

Section 138 states that the drawer of the cheque will be prosecuted under sections 417 and 420 (IPC), 1860 with the detainment of 2 years or fine or both.

Jurisdictional Development

The act does not talk about the matters related to the proper jurisdiction with regards to filing of a criminal complaint under Section-138. As the criminal courts are approached, the issue should be analyzed from the view of Section 177 and 178 (d) of Criminal Procedure Code (i.e.) CrPC.

In the case of Gautham T.V. Centre vs Apex Agencies the High Court of Andhra Pradesh ruled that the Courts under whose jurisdiction the cheque has been given, or where the details of dishonor have been received or where the workplace of the recipient is situated, will have the jurisdiction to try the offence.

After this, in the case of K.Bhaskaran v. Sankaran Vaidhyan Balan and Anr. , the Supreme Court held that in the judgment, paragraph no. 12,13,14,15,16 explains where to file a criminal complaint in case the crime of Dishonor of a Cheque is committed under Section 138 of NI Act,1881. The law that every offence should be tried by a Court under whose jurisdiction it was committed is exceptional or changeable principle. However, the precautionary word ‘ordinarily’ used in Section 177, indicates that the law is not invariable in all cases and has been very thoughtfully framed by the legislature.

However, in the case of  Harman Electronics Pvt. Ltd.  v. National Panasonic India Pvt. Ltd. 6 ,the scope of jurisdiction decreases as compared to the previous case. In this case Apex Courtheld that the only acceptance of the notice activates a cause of action and it cannot be activated by issue of statutory notice. Only the particular provisions of Section 138 will build an offence and these provisions are mere conditions which are essential for taking cognizance. An only notice cannot give the court territorial jurisdiction to try crimes under Section 138 else it will unnecessarily harass the drawer.
In Dashrath RoopSingh Rathod v. State of Maharashtra & Anr. the Supreme Court held that there is a difference between the commission and cognizance of offence. Cognizance leads to reason of action and complaints can be filed only in those courts under whose jurisdiction the cheque is given for encashment.

Recent Judgments Under Section 138

In the case of Dayawati v. Yogesh Kumar Gosain Delhi High Court has laid down the
distinction between traditional criminal cases and offences under section 138, NI Act,1881 and held that it is lawful to refer a criminal compoundable case as 1 under this section to mediation and also explained the procedure to be followed in cases of mediation & outlined the contents of the settlement.

In, M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta , the Supreme Court made some observations related to speedy disposal of cases by using modern technologies and observed that it should be considered not only for paperless courts but to reduce overcrowding of courts also.

The Negotiable Instruments (Amendment) Act, 2018 is enforced on 1st September, 2018.This Act permits the Court to try an offence related to cheque bouncing, to direct the drawer to pay interim remuneration not more than 20% of the cheque amount to the complainant within 2 months of the trial court’s order to pay remuneration. This interim remuneration can be paid either in a speedy trial or a summons case where the drawer pleads not guilty to the allegation made in the complaint; or upon mounting of charge in any other case. Besides, the Amendment likewise enables the Appellate Court, hearing interests against conviction under S. 138, to guide the litigant to store a base 20 % of the fine/remuneration granted, barring interim remuneration.


Section 138 will shield the payee from any illicit act of the drawer. The articulation account is inadequate to honor the cheque or that it surpasses the sum sort to be paid from that account showing up in Section 138 of the Act is a genus and dishonour for reasons, for example, account shut, instalment halted, alluded to the drawer are just types of that genus. It not just means to secure the profits of the payee yet in addition to carry a sanctity to the drawers who give the cheques.

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