The Cheque is said to be honoured, if the bank give amount to drawee/payee. While bank refuse to give amount to payee because of  something lack in drawer’s bank account  is said to be Cheque Dishonoured.

(Drawee: Drawer is a person who draws a cheque in favour of someone.)

(Drawer: Drawee is a person in favour the cheque is drawn.)

The Cheque system established in India in 1784 ,Bengal Bank was the first bank to introduce cheque system. In England the London goldsmiths were the first banker to use the payment of cash through cheque dates back 17th centuury. Graudually the cheque system widely accepted and popular as negotitable instrument in settle the trade and commerce transaction.Everything in this world have pros and cons so one of the biggest prombles,which we are facing related to cheque is Dishonoured of Cheques which menace the creditibility of negotitable instrument.


Section 138 of Neogtiable Instrument Act, 1881                                     

The Negotiable Instrument Act enacted the concept of Section 138 and this section laydown insufficency of fund in amount. When drawer give signed cheque to drawee  and it is for” debt or other liablity” which means that debt or other liablity is legally enforceable .This section states that when drawee going to deposite the cheque in bank after he came to know this cheque is not honoured it means that the Cheque in question is not honoured by the bank.

When section 138 comes into effect:                 

  1. a) The cheque has been presented to the bank within six months from date on which drawee received the cheque from drawer or within the period of validity whichever is earlier;
  2. b) The cheque is returned a ‘cheque return memo ‘ is offered by the bank the drawee makes a demand for the payment of money by giving notice in writing to the drawer within thirty days of the receipt of infromation by him from bank regarding the return of the cheque as unpaid ;
  3. c) When the drawer fail to make the payment of said amount ,drawee within 15 days of receipt of notice from sixteenth day of notice drawee move to court and file a case against drawer.

Section 142 of Negotiable Instrument Act ,1881

This section talked about the Punshiment of offence related to Dishonour of Cheque. This section provides that :

1.a) No court is competent shall take the cognizance of any offence punishable under section 138 except upon a complaint is in writing made by drawee as the case may, be the drawer fail to make the payment .

  1. b) Such compalint made with one month of the date on which the cause of arises under clause (C) of section 138.
  2. c) Any complaint related to this offence cannot be entertain in the inferior to that Magistrate or a Judicial Magistrate of first class .
  3. Subsection(2) talked about jurisdiction ,offence of section 138 tired and inquired only by the court within whose local jurisdiction . a) where the cheque is drawn, where the drawer or drawee account maintains;or  b)Where the payment had to be made,  where the cheque is dishonoured, where notice served upto drawee.
  4. Reason for Dishonour of Cheque a) Stop Payment : The stop payment means instruction made by drawer to bank to cancel  cheuque or payment that has not yet been proceed .             Refer the case: MMTC Ltd. vs. Medchl Chemicals and Pharma (P).,(2002)1SCC234.
  5. b) Bank Account Closed : The dishonour of cheque on the ground that the account has been closed by the drawer of the cheque constitutes an offence under section 138.” Account closed” means that through account in operation but subsequently the account closed.and this one of the mode by which drawer has no intention to make payment.
  6. c) Refer to the Drawer : It means statement of the bank ”we are not paying.go back to drawer and ask why .”In M/s Electronic Trade &Technology Development Corporation Ltd. It was held that if cheque is returned with the endrosment ‘Refer to drawe’ or instructions for stoppage payment or exceeds arrangement, it amounts to dishonour of cheque.
  7. d) Insufficent fund : As per the section 138 the cheque is not honourred because of insufficient fund means does not have enough amount available to proceed the payment.
  8. Liabilities on Dishonour of Cheque There are two types of liabilities related to Dishonour of Cheque: Civil Liability: In civil liability as per the section 138 of negotiable Instrument Act, imposing fine twice the amount of dishonoured cheque.

Criminal Liablity:  Dishonour of Cheque is a criminal offence under Section 138 ,provides the punishment of imprsionment of two years or fine or both and the drawer of the cheque will be prosecuted under section 417 and 420 of Indian Penal Code (IPC), 1860.


  1. Judicial Approach
  2. Harman Electronics (P) Ltd. vs. National Pnasonic India.(P) Ltd.(2009)- In this case court held that offence under section 138 of NI Act governed by section 177 of CRPC with respective to territorial jurisdiction.
  3. K. Bhaskaran vs. Shankara AIR 1999 SC 3762 – In this case hon’ble Apex court laid down five condition had given jurisdiction to intiate the prosecution at any of the following places.
  4. Where cheque is drawn.
  5. Where payment had to be made.
  6. Where cheque is presented for payment
  7. Where cheque is dishonoured.
  8. Where notice is served upto drawer
  9. Dashrath Rupsingh Rathod vs. State of Maharastra & Anr (2014)SCC129 – The Supreme court in this case overruled the two Judge Bench Judgement in case K. BHhaskaran vs. Shankara by stated that a compalint of Dishonour of Cheque can be filed only the court within whose local jurisdication the offence was committed , which it is drawn. The Court clariifed that the Complainant is a statutorily bound to comply with section 177 etc of CRPC and therefore the place or suites where the section 138 Complaint is to be filed is not his choosing.

5 .Recent Jurisdictional Development under Section 138 of Negotiable Instrument Act, 1881

 .  On the recommandations of the Standing Committe on Finance and other respresentations, it has been decide to brind out ,inter alia, the following amendments in Negotiable instrument ,Act ,1881, namely:-

(i) to increase the punishment as prescribe under the Act from one year to two years;

(ii) to increase the period for issue of notice by the payee to the drawer from 15 days to 30 days.

. the Negotiable Instruments (Amendment) Ordinance, 2015, which has been promulgated by the President on 15 June 2015, and which has immediately come into force with effect from 15 June 2015. The above Supreme Court judgment is now of no consequence since this Ordinance supersedes it, clarifying jurisdiction related issues for filing cases of offence committed under Sec 138.The main amendment included in this is the stipulation that the offence of rejection/return of cheque u/s 138 of NI Act will be enquired into and tried only by a Court within whose local jurisdiction the bank branch of the payee, where the payee presents the cheque for payment is situated  .

Now a cheque bouncing case can be filed only in the court at the place where the bank in which the payee has account is located.

 Secondly, once a cheque bounce case has been filed in one particular court at a place in this manner, subsequently if there is any other cheque of the same party (drawer) which has also bounced, then all such subsequent cheque bounce cases against the same drawer will also have to filed in the same court (even if the payee present them in some bank in some other city or area). This will ensure that the drawer of cheques is not harassed by filing multiple cheque bounce cases at different locations. So, even multiple cheque bounce cases against the same party can be filed only in one court even if payee presents the cheques in different banks at different locations.

 Thirdly, all cheque bounce cases which are pending as on 15 June 2015 in different courts in India, will be transferred to the court which has jurisdiction to try such case in the manner mentioned above, i.e., such pending cases will be transferred to the court which has jurisdiction over the place where the bank of the payee is located. If there are multiple cheque bounce cases pending between the same parties as on 15 June 2015, then all such multiple cases will be transferred to the court where the first case has jurisdiction as per above principle.

. Thus, this new Ordinance now introduces some clarity and uniformity in the matter of cheque dishonour cases. This Ordinance takes care of the interests of the payee of the cheque while at the same time also taking care that the drawer of the multiple cheques is not harassed by filing multiple litigations at different locations to harass him (if more than one cheque has bounced). This Ordinance supersedes the Supreme Court decision dated 1 August 2014 [Dashrath Rupsingh Rathod v. State of Maharashtra, (2014) 9 SCC 129] or any other judgment / decision of any court (Supreme Court or High Courts) on this issue.


Dishonour of cheque is one of criminal offence in India. This offence affecting the financing world. Many amendments in the act as been made like increase the punishment but unfortunately increasing the punishment is not decreasing offence. And one of main reason is that most of the people in Indian not yet aware this kind of offences.

Blog By:

Sonia Pelwar

Amity Law School, Noida


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