Dishonor of Cheque

Dishonor of Cheque

Introduction– Dishonor of Cheque

A cheque is a negotiable instrument, so now what is negotiable instruments? According to section-13 of NI Act, that is Negotiable instruments Act, a negotiable instrument is a promissory note, bill of exchange or cheque payable either to order or bearer.

Then, according to section- 6 of the NI Act, a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. According to section- 5 of NI Act, a Bill of exchange Is an instrument in writing containing an unconditional order signed by the maker, directing a person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

In simple words, we can say that a cheque is a negotiable instrument promised to the payee by the drawer which can be cashed by presenting it at the drawee bank. A cheque remains valid for a period of three months from the date of issue in India. The cheque becomes valueless when it expires.

Dishonor of cheque

A cheque that cannot be processed because the account holder has non – sufficient funds available for use. This is called dishonor of cheque. The remedies available to the payee in case of dishonor of cheque is that, the payee can honour it upon resubmission with the period of its validity and the payee can resubmit the cheque.

If the cheque is dishonored again then the payee again will receive the cheque memo from the drawer’s bank. In this case, within 30 days of the receipt of the memo, the payee can issue a legal notice to the drawer, demanding him to pay within a period of 30 days of the receipt of the notice and in the notice the due cheque amount should be mention which the payee is required to pay.

If the drawer refuses to pay or any default arise then in this case the payee may prosecute and file a complaint under section – 138 of the negotiable instruments act 1881. The complaint under section 138 of Negotiable instruments act is registered in a magistrate’s court and within 30 days of the expiry of the notice period. The payee may also prosecute for fraud / misappropriation, breach of trust, cheating, harassment or any other crime of which he has been a victim.

Section 138 of the Negotiable Instruments Act

  • Dishonor of cheque for insufficiency etc. of funds in the accounts: Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge,
  • in whole or in part,
  • of any debt or other liability,
  • is returned by the bank unpaid,
  • either because of the amount of money standing to the credit of that account is insufficient to honor the cheque
  • or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank,
  • such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both:

PROVIDED that nothing contained in this section shall apply unless:

  1. the cheque has been presented to the 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.
  2. the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and
  3. the drawer of such cheque fails 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 fifteen days of the receipt of the said notice.


For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

Validity for prosecution in dishonor of cheque u/s 138:

The cheque should have been drawn by the accused on his account or the account maintained by him. The reason for return/ dishonor of cheque should be ‘Insufficient funds’ in the drawer’s account, or, the amount in cheque should have exceeded the limit allowed to the drawer. The cheque should have been issued towards discharge of a valid debit or legal liability, in whole or in part.

Whichever is earlier, the cheque should have been presented within three months from the date on which it was drawn, or, within the period of its validity. The cheque should not have been drawn as a gift cheque. The complainant should have served the notice upon the accused within 30 of receiving the return memo, demanding the accused to pay for the amount in the cheque. The accused should not have complied with the notice or paid within the stipulated period of time.

The procedure of law in Dishonor of Cheque u/s 138 of Negotiable Instruments Act, 1881

A complaint is filed along with the relevant paper trail and an affidavit in support. The court issues summons and fixes date to hear the matter. If the accused ignores or avoids summon, the court may direct to issue the summons at an alternate address or may order bailable warrant against the accused.

If the accused yet ignores or avoids the bailable warrant, the court may order non-bailable warrants. If the accused still does not appear, the court may declare the accused as proclaimed offender. The court may upon finding the accused guilty as charged, may proceed ex-parte, and pass the final order.

If the accused is aggrieved and maintains that the complaint made against him is false. The accused may plead not-guilty and pursue the trial: The cheque is forged. The cheque is obtained by fraud, force, coercion, blackmail, misrepresentation and through any other illegal method. The cheque is of greater value than the consideration due. The cheque was issued without a date.

The complainant is not a bonafide complainant. The complainant has concealed material fact(s) in the complaint. The cheque was issued for a consideration other than for what it was being presented. There has been a lapse in the contract by the complainant. The object of the contract between the parties was not legal. The cheque was issued in absence of legal or valid liability. The cheque was a gift cheque. The accused became insolvent after the dishonor of cheque.


The offender for dishonor of cheque can be punished with a monetary penalty which may be twice the amount of the cheque or imprisonment for a term which may be extended to two years or both. The bank also has the right to stop the checkbook facility or close the account.

It is to be noted that if a drawer makes the required payment within 30 days from the date of receipt of the legal notice, or both the parties settle their dispute within that period, (Dayawati v. Yogesh Kumar Gosain) and file a quashing before the High Court with a settlement and complainant’s affidavit in support, or if the accused gets the complaint case quashed by the High Court on merit, in such a case, the accused is not held liable for the offense.

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  1. Dayawati v. Yogesh Kumar Gosain (Delhi High Court)

In a remarkable judgment passed by the Delhi High Court, the Court has drawn a distinction between traditional criminal cases and offence under Section 138 of Negotiable Instruments Act, 1881 (hereinafter referred to as NI Act) of Dishonor of cheque to hold that it is legal to refer a criminal compoundable case as one under Section 138 of NI Act to mediation.

The Court in the case also expounded the procedure that is to be followed in cases of mediation for offences under Section 138 of NI Act and also delineated the contents of the settlement. In the case, the Court held that it is legal to refer a criminal compoundable case as one under Section 138 of NI Act to mediation.

2. Only Handing over of Dishonored Cheque does not Attract Offence under Section 138 of NI Act. Case – Smt. Asha Baldwa v. Ram Gopal

3. Case to be instituted at the Place where Branch of the Bank on which Cheque was drawn is located.  Case: Dashrath Roopsingh Rathod v. State of Maharashtra & Anr

4. Supreme Court on Object behind Enactment of Section 138 of NI Act Case: Dalmia Cement (Bharat) Ltd v. M/S. Galaxy Trades & Agencies Ltd.

The Supreme Court in the case while stressing on the object behind enactment of Section 138 of NI Act stated that the provision for dishonor of cheque was incorporated with a specified object of making a special provision by incorporating a strict liability so far as the cheque, a negotiable instrument, is concerned.

The law relating to negotiable instrument is the law of commercial world legislated to facilitate the activities in trade and commerce making provision of giving sanctity to the instruments of credit which could be deemed to be convertible into money and easily passable from one person to another.

In the absence of such instruments, including a cheque, the trade and commerce activities, in the present day would, are likely to be adversely affected as it is impracticable for the trading community to carry on with it the bulk of the currency in force.

5. Case: Modi Cements Limited v. Kuchil Kumar Nandi (1998) 3 SCC 249, Insufficiency of funds at the time of issue of cheque does not by itself create the presumption of dishonesty in issuing the cheque but leads to dishonor of cheque.


  1. negotiable instruments act,1881
  2. Indian kanoon

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