This article discusses the law and jurisprudence around dishonour of cheques in India

Author - Shikha Chandlekar

Before we begin our discussion, it’s important to understand that what is a cheque and where does it draw its powers from. The cheque is a negotiable instrument drawn on a particular banker and does not explicitly state that it is payable to someone else upon demand. Section 6[1] of the Negotiable Instruments Act, 1881 (“N.I Act” or “Act”) says that a cheque includes:

a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form. Explanation I. —For the purposes of this section, the expressions—

(a) “a cheque in the electronic form” means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system;


(b) “a truncated cheque” means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

 Further, Section 13[1] of the N.I Act defines negotiable instruments as:“a promissory note, bills of exchange or cheque payable either to order or to bearer”. 

A negotiable instrument is a type of document that assures its bearer a sum of money to be payable on demand or at any later time. As cheques are one of the most widely used instruments and mode of payments in India, it was always necessary to have a strong legislation to governing situations of “Dishonour of Cheque to ensure the public trust in this instrument remains intact.


The N.I Act was enacted before the freedom of the country therefore most of the provisions in the act are supported by English statute. After the freedom, certain amendments were made in the Act in order to secure the provisions. Section 138 of the Negotiable Instruments Act, 1881 mentions the penal provision regarding dishonour of cheque. It says that;

Any person 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 be extended to two years], 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:

  • 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
  • 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 thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and
  • 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.

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

Further amendments were made in the Act in the year 2015. The Negotiable Instruments (Amendment) Act, 2015[1] is focused on clarifying the jurisdiction related issues for filing cases for offence committed under section 138 of the N.I Act, 1881. The N.I (Amendment) Act, 2015, facilitates filing of cases only in a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment through his account, is situated, except in case of bearer cheques, which are presented to the branch of the drawee bank and in that case the local court of that branch would get jurisdiction. The N.I (Amendment) Act, 2015 provides for retrospective validation for the new scheme of determining the jurisdiction of a court to try a case under section 138 of the N.I Act, 1881. The N.I (Amendment) Act, 2015 also mandates centralisation of cases against the same drawer.


Additionally, the Negotiable Instruments (Amendment) Bill of 2017[2] inserts  Section 143-A in the N.I Act, making provision for the paymen tof interim compensation of an amount not exceeding 20% of the value of the dishonoured cheque by the drawer to the payee during the pendente lite for the offence of dishonour of cheque u/s 138 of the Act.


Cheque dishonouring amounts to a criminal offence since it interferes with the exercise of a civil right. Therefore, when cheques are dishonoured, both civil and criminal liability may be involved. The civil liability as laid down in Section 138 of the N.I Act charges a fine twice of what the amount of the dishonoured cheque. In case of civil liability the interference of court takes place if the concerned payee files a suit under Order 37[3] of the Code of Civil Procedure, 1908. With respect to criminal liability, Section 138 of N.I Act imposes a punishment of two consecutive years and the hearing of the drawer takes place under the provisions of the Indian Penal Code, 1860, namely Section 417[4] and  Section 420[5].


The main objective of this law is to incentivize the trend of the use of cheques and to increase the reliability of cheque transactions. This is expected to help the trade and commerce in general andallow the lending institutions, including banks, to continue to extend financing to the productive sectors of economy. A violation of Section 138 constitutes a non-cognizable offence and also a bailable offence.


  • Furnishing of cheque: The foremost thing which is required to be done is to furnish the cheque within the validity period of 3 (three) months from the date on which it is drawn, furthermore a cheque can be presented for more than once not more than thrice within the period of validity.
  • Notice of Demand: In the event of dishonouring ofcheque, immediately a Notice of Demand should be sent to the drawer. The time limit for furnishing the notice of demand to the drawer is 30 (thirty) days. The necessary elements of a Demand Notice are:
  1. That the cheque was presented to the drawer before the expiry of its validity.
  2. That there was a legal liability which could be levied on the drawer.
  3. Return memo regarding the dishonour of cheque as given by the bank.
  4. Demand notice requiring the issuer to make payment within 15 (fifteen) days.
  • Proof of Notice: The Drawer should pay the amount within 15(fifteen) days of “Notice of Demand” to the aggrieved Party. Moreover, the aggrieved Party should have the proof that they furnished the Notice of Demand to the drawer.


  • Amendments in the amount of cheque.
  • Modification in the name of the payee.
  • An alteration in the dates of the cheque.
  • Making any other sort of changes to the cheque.

Judgments that have been passed for the cases that revolve around this Act play significant role in guiding the Act towards a path of improvement.


The case of M/s. Dalmia Cement (Bharat) Ltd. Vs M/s.Galaxy Traders & Agencies Ltd. &Ors[1] is one of the cases whose ruling became a landmark for the Supreme Court as this case states the reasoning behind the enactment of Section 138 of the N.I Act. The Court basing its ruling on the existing facts said that Section 138 of the Act has been enacted keeping in concern any kind of infringement of legal right of the person whose payment has not been dispensed and if any such situation arises which will make it impossible for the person to get the payment then in such matter, the section 138 of the N.I Act should function the way it is laid down to keep the objective of the N.I Act.

Further, in case of Modi Cements Ltd Vs Kuchil Kumar Nandi (1998)[1]the purpose of Section 138 of the N.I Act has been professed to increase the efficiency of functioning of banks and establish reliability in business transactions via cheques. It said that the Section 138 of the N.I Act formulates a statutory wrong relating to the matter of disgrace oriented cheques based on the grounds of insufficiency of funds in the account of the drawer. Further, the case also says that the amount greater than the one arranged to be delivered which is in the form of an agreement with the bank also falls within the realm of Section 138 of the N.I Act. 


The Supreme Court in TRL Krosaki Refractories Vs SMS Asia Pvt Ltd[2] held that in a case of dishonour of cheque a company can file a complaint only through human agency. The person who presents the complaint on behalf of the Company should be an authorized representative of the company.

With changing economic scenarios, cheques have improved with time, making them more practical and preferable over carrying cash for transactions in the modern day. At the same time we need to keep the fact in mind that the practice of not honouring the cheques has also been increased and in order to dissuade the similar there has been the enactment of Negotiable Instruments Act, 1881.

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