This Article on “DISHONOURING OF CHEQUES” is written by Lenna Joshy, student of Government Law College, Thrissur.


A cheque bounce is a common financial offence which leads a user into legal trouble and damages his or her credit rating. In the modern era, online banking is the most opted mode of transaction. But some people still used to transfer money traditionally by using cheques. People usually prefer cheques instead of carrying a huge amount of currencies. Since cheques are a mere piece of paper issued by the bank authority to make payments, therefore, it becomes a convenient way to carry out transactions as the chances of occurrence of theft or being robbed, reduces.

The cheques are negotiable instruments, which are payable on demand. The Banking, Public Financial Institution and Negotiable Instruments Laws (Amendment) Act, 1988 (66 of 1998) that chapter XVII was incorporated in the Act dealing with the dishonouring of cheques or cheque bounce. Usually, when a cheque fails to process the amount, or mismatch of signature, the cheque bounces

Definition of cheque

A cheque is a document that orders a bank authority to pay or transfer a specific amount of money from a bank person’s account to the person in whose name the cheque has been issued. According to Section 6 of the Negotiable Instruments Act, 1881, it defines cheque as a ‘bill of exchange which is drawn on a specified banker and would not be payable unless on demand’. A cheque is inclusive of an electronic image of a truncated cheque and a cheque in electronic form.  There are three parties to a cheque i.e., 1) Drawer 2) Drawee 3) Payee.

What is meant by dishonouring of cheques?

The reason for the dishonouring of cheques may vary but the major reason to understand is due to insufficient funds or balance in the drawer’s account. Under section 138 of Negotiable Instrument Act, 1881, Act, dishonouring of cheque by the reason of insufficiency of funds or the balance is a penal offence. The various other reasons to which the dishonour of cheque happens are:

  • Insufficient amount in the account to meet the payment amount.
  • When the drawer closes his account before presenting the cheque in the bank.
  • Overwriting on the cheques.
  • On the order of the drawer to stop the payment on that cheque.
  • Absence of the payee’s name or if it is not written clearly.
  • If the cheque comes in tormented state, i.e., torn, wet, or spotted.
  • If there is no match found between the amounts mentioned in figures and digits.
  • Absence of the account number or if it is not clearly written.
  • If any court orders to stop the payment on the cheque.
  • Upon the death or unsoundness of mind or insolvency of the drawer.
  • If the changes made on the cheque are not approved by the drawer.
  • Absence of signature or mismatching of signature with the specimen’s signature which the bank is having.
  • The absence of date mentioned has expired the duration of 3 months.

Effective Remedies:

There are two remedies available for dishonouring of cheques, that are, Civil and Criminal Remdies. Criminalization of dishonouring of
cheques is very recent as far as the NI Act is concerned. Before the insertion of Sec. 138,
only civil and alternative dispute resolution remedies existed. The civil remedy means that
while filing a case for the enforcement of the contract between the parties. If a party decided to prevail the remedy under section 138 i.e., a criminal remedy than, the option of instituting the civil suit will not fade.

Civil Remedies

When a cheque is bounced, the civil remedy is available to the payee for filing a civil suit. While in criminal remedy, the defaulter will be punished and cannot claim for any dues ending in a criminal suit. For the recovery of money, a civil suit can be filed in the place where the person resides or the place where the cheque was earlier
deposited making it easier for the victim during the legal recourse.

Criminal Remedies

According to Sec. 138 of Negotiable Instruments Act, 1881, dishonouring or bouncing of
the cheque is made a criminal offence. This section only applies to cases where cheques are bounced due to the insufficiency of funds in the account and not because of any other technical default on the part of the drawer.

It is provided under section 420[cheating] and section 406[criminal breach of trust] of the Indian Penal Code that an aggrieved party can initiate criminal proceedings against the drawer. Only these two sections can be used to prosecute a drawer for dishonoured cheques.

In Sangeetaben Mahendrabhai Patel Vs. State of Gujarat2, it was held that an aggrieved
party can initiate proceedings under both IPC and NI Act, 1881 without falling under the
double jeopardy rule which is defined in Article 20(2) of the Constitution of India.

The civil remedy is initiated first by serving a written notice to the drawer, which is done within 30 days from the date of return of the cheque memo. The sole reason for sending a notice is that the drawer has to pay off the due money within 15 days period or a suit can be filed against him.

If the due money is not paid even after the above mentioned period, then the payee has the option to file a criminal. If the drawer is found guilty under the act, then he shall be punished with imprisonment of two years or fine of INR 5000 or both.

Mandatory Alternative Dispute Resolution or Arbitration[ADR] It is mandatory for the parties to resolve a cheque bounce disputes through an alternate dispute redressal mechanism, which is made mandatory under section 89 of Code of Civil Procedure, 1908. Criminal compoundable cases are usually referred to LokAdalats or arbitration under the Legal Services Authorities Act,1987.3 According to News reports, it is due to these LokAdalats that a huge number of pending cheque bounce cases have been resolved in India4


Section 138 of the Negotiable Instrument Act

The Negotiable Instrument Act, 1881 deals with negotiable instruments, such as promissory notes, bills of exchange, cheques etc. Section 138 of the NI Act states that when a person who has an account with the bank and he wants to make a payment for the discharge, in whole or in part, of any debt or other liability, and that is returned by the bank, it is called dishonouring of the cheque. Such a person would be punishable with imprisonment which may extend up to 2 years, or with fine which may extend to twice the amount of the cheque, or with both. Sections 138-142 of the act which contains the penal provisions have been enacted to ensure that obligations undertaken by issuing cheques as a mode of deferred payment are honoured.


Major ingredients of the offence under Section 138 are:-

  1. The cheque is drawn by the accused on an account maintained by him with a banker.
  2. The amount in the cheque is in the discharge of a debt or liability; and
  3. The cheque is returned unpaid due to the insufficiency of funds or that the amount exceeds the agreement made with the bank, the offence standing committed the moment the cheque is returned unpaid.

The further steps laid down by the way of the proviso are distinct from the ingredients of the offence which the enacting provision creates and make punishable. Thus, an offence committed with the contemplation of Section 138 is complete with the dishonour of the cheque but taking cognizance of the same by any court is forbidden so far as  the complainant will not have the cause of action for failing a complaint in  terms of clause (c) of the proviso read with Section 142, Dashrath Rupsingh Rathod v. State of Maharashtra,5

Essential Conditions

Following are the three distinct condition precedent that must be satisfied before the dishonour of a cheque and can constitute an offence with this section 138 and become punishable.

  1. The cheque has to be present to the bank within a period of 6 months [3 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, ought to make a demand for the payment of the said amount of money by serving a notice in writing from the bank regarding the return of the cheque as unpaid within 30 days of the receipt of information by him.
  • The drawer of such a cheque must fail to pay the required amount of money to the payee or within 15 days of the receipt of the said notice served to the holder in due course of the cheque.

It is only upon the satisfaction of all the three conditions mentioned above and enumerated under the proviso to Section 138 as clause (a), (b) and (c) thereof that an offence under Section 138 can be said to have been committed by the person issuing the cheque, MSR Leathers v. S. Palaniappan6


The sentence that is prescribed under Section 138 is up to two years with fine which may extend to twice the amount payable or with both. What needs to be noted is the fact that power under Section 357(3) CrPC to direct payment of compensation is in addition to the said prescribed sentence, if the sentence of fine is not imposed. The direction to pay compensation can be enforced by default sentence under Section 64 IPC and by recovery procedure prescribed under Section 431 CrPC, Meters and instruments (P) Ltd. v. Kanchan Mehta,7

Latest Amendment

The Negotiable Instrument Act, 2018 came into force on 1st September 2018. According to the new act, the court can try an offence related to cheque bounce and direct the drawer to pay interim compensation not exceeding 20% of the total amount on the cheque. The amendment also allows the court to hear appeals against the appellant to deposit 20% of the compensation awarded, in addition to interim compensation.

The government is likely to amend the present law of punishment, making it a non-bailable offence for defaulters.

Very recently a statement is released by the Ministry of Finance on 8th June, 2020  has proposed to decriminalise some economic offences and one of the offence is coming under Section 138 of Negotiable Instrument Act, 1881 for the dishonour of cheque. On June 23, 2020, the ministry has invited comments of stakeholders on the decriminalization of dishonour of cheque.

Mens rea is not required to constitute an offence U/S 138

The parliament objected to strengthen the use of cheques, distinct from other negotiable instruments, as mercantile tender and therefore it became essential for Section 138 to be freed from the requirement of proving mens rea [guilty state of mind]. Section 139 carves out the presumption that the holder of a cheque has received it for the discharge of any liability. Section 140 clarifies that it will not be available as a defence to the drawer that he had no reason to believe, when he issued the cheque, that it would be dishonoured, Dashrath Rupsingh Rathod v. State of Maharashtra,8


Scheme of Prosecution under Section 138

The procedure prescribed under section 138 of the Act talks about the punishment in cases of cheques but does not lay down the process to be followed during the investigation of the said offences.

For the parties to initiate prosecution, the payee or holder in due course claiming payment is required to file a written complaint before the appropriate authority having territorial jurisdiction.

The complaint filed should mention all allegations that the payee seeks to make against the drawer of the dishonoured cheque and those allegations should be based on the following conditions that constitute the offence of dishonouring of cheques under Section 138 of the N.I. Act:

  • That, it has to be proved that the person had issued a cheque while having a bank account with the respective bank;
  • That, the bank without making any payment returned it to the payee when he produced the signed cheque before the bank.
  • That, the cheque was presented within the period of 6 months from the date when it was drawn, or within its validity period, whichever is earlier;
  • That, the payee, on receiving an intimation from the bank regarding dishonouring of cheques (through a return memo), sent him a notice in writing, asking for the payment of the amount mentioned in the cheque;
  • The notice being issued by the payee should have been sent to the drawer within a period of 30 days from the date of the receipt of the information by the payee from the bank, regarding non-payment of the amount mentioned on the cheque and for the return of the cheque;
  • If in 15 days from the date of the receipt, the drawer of the cheque does not make the payment, he would be held liable for the dishonouring of cheques under Section 138.



The cheque bounce cases are tremendously arising, as there are 40 lakh cases pending before the courts. The Ministry of Law and Justice is planning to present the amendment bill that is aimed to cut down the pendency of nearly 20 lakh cheque bounce cases in India.

Under the proposed steps taken by the judiciary and the changes brought by the legislature step in the right direction. But there is a need to realize that commercial realities in India and further expedite the process of recovery to discourage delays caused by the accused, unnecessary adjournment, and frivolous appeals. The lack of basic infrastructure to deal with dishonouring of cheque cases is overburdened in India. It is vital that people have faith in the integrity and honesty of the system. However, the reliability of cheques in commercial dealings has been eroded to a great extent. Payee suffers financial loss, inconvenience, and injury due to dishonouring of cheques.


1Negotiable Instruments Laws (Amendment) Act, 1988

2Sangeetaben Mahendrabhai Patel v. State of Gujarat, (2012) 7 SCC 621

3K.N. GovindanKuttyMenonv. C.D. Shaji, (2012) 2 SCC 51.
4 Press Trust of India.2017. ‘National LokAdalat Settles 6.6 Lakh Cases Across the
Country’, India Today, 11 April, available online at

5DashrathRupsinghRathod v. State of Maharashtra, (2014) 9 SCC 129.

6MSR Leathers v. S. Palaniappan, (2013) 1 SCC 177.

7Meters and instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560.

8Dashrath RupsinghRathod v. State of Maharashtra, (2014) 9 SCC 129.