CS Akhilesh Kumar Jha

Introduction-  The Payment and settlement System Act, 2007 was enacted on 20th December, 2007. The whole purpose of this act is to control the transactions which are made electronically. The intention of the government was to introduce of this act to increase the transactions through online instead of cheques.  Where cheques related issues like dishonored of cheques is covered under the Negotiable Instrument Act, 1881. So what shall the treatment of dishonor of cheques be under the Negotiable Instrument? Let’s discuss:-


The cheque is just a hard size paper which is issued from bank for making payment on demand. On the face of such paper we have mentioned the name of person whom we want to make payment instead of cash, making proper signature on the face of cheque which is recognized by the bank.  Thereafter, the cheque is presented before the Bank. Bank satisfies itself that the cheque is in proper way. The amount has been debited from our account and the payment has been made.  This is a simple and common meaning of cheque.

The legal definition has been prescribed under the Negotiable Instrument Act, 1881, i.e. A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.

In that definition, the cheque has three components first is bill of exchange, second is in relation a bank and last one is demand.

So before coming on the topic of Cheque, it is favorable for us if we read the meaning of “bill of exchange”. The bill of exchange is an instrument. On that instrument we have just write the direction to make payment of such and such amount to such other person. That direction must be unconditional. It is not required to put the conditions; if we put the conditions it shall presume that it is not a bill of exchange. As per the negotiable instrument Act the Bill of exchange means “A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain 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.”

Other components are Bank, so the bank where the cheque has been presented for payment which is issued on demand.

Finally, the cheque is an instrument and on that instrument we put direction without any conditions to make payment to other. It is drawn on a specific bank. When the cheque is presented to such specific bank for payment by way on demanding, the payment is made accordingly.

Dishonor of Cheque

There are various reasons where the bank does not accept cheques for making payment.  Lets us focus in brief of reasons for dishonoring:-

a)    Date is whether incorrect or not visible.

b)   Name of payee is not correct

c)    Date mentioned on the cheque is older than 3 moths

d)   Proper crossing has not been made

e)    Amount in words are not according to figures

f)     Account number is mentioned incorrectly

g)    Specimen signature which is in the record of bank does not match with the signature which is mentioned on cheque

h)   The amount as mentioned in the chequ is excess from account

i)     Where the cheque is over written

j)     Where cheque is not found in proper conditions

k)   Where the drawee instructs to stop to make payment of such cheque

l)     Where the drawee has closed his account in that bank where the cheque has been present for clearance.

m)  Insufficient fund to clear the cheque.

These are the major reason to dishour of cheque from the side of Bank.  Reserve Bank of India has prescribed the procedure below under the reference no. Ref. DBOD.BC.Leg. No.113 / 09.12.001/ 2002-03, when the cheque has been dishonored 

4. I. Procedure for return/ dispatch of dishonored cheques:

(i) The paying bank should return dishonored cheques presented through clearing houses strictly as per the return discipline prescribed for respective clearing house in terms of Uniform Regulations and Rules for Bankers’ Clearing Houses. The collecting bank on receipt of such dishonored cheques should dispatch it immediately to the payees / holders.

(ii) In relation to cheques presented direct to the paying bank for settlement of transaction by way of transfer between two accounts with that bank, it should return such dishonored cheques to payees/ holders immediately.

(iii) Cheques dishonored for want of funds in respect of all accounts should be returned along with a memo indicating therein the reason for dishonour as “insufficient funds.”

Remedies Available in case of dishour of cheque due to “insufficient fund”

Where the cheque is presented in the bank and it is returned by the bank due to “insufficient fund”. It is called dishonor of cheques. In this regard, the remedies are available under the Negotiable Instrument Act, 1881 i.e.  Section 138 of the Negotiable Instrument Act, 1881.

For better understanding of this section, we come on the general language of the bare act, where a person who maintains the account in a bank, draw a cheque with the bank for payment of any amount to other person for discharge of liability but the bank returns the cheque due to insufficient fund to cheque holder. This situation is called dishonor of cheque.

It means when the cheque is presented with bank for acceptance, but due to insufficient fund, the cheque is not accepted, in result of this cheque has been dishonored by bank.

In this situation, it seems that the person, who issue cheque, has made default because at the time of opening an account, he has entered agreement with bank and that person is deemed to be a defaulter of such transaction.

In that case, the person shall be liable for imprisonment which may be extended up to one year or find which is twice of such dishonored cheque or both.

Section 138 of NI, Act Not Apply

This section shall not be applied in following case:-

1-   The cheque must be presented before 3 months or within its validity period whichever is earlier.

2-   The holder of cheque may issue notice within 15 days from the date of dishonoring of cheque from bank.  In case where the issuer of cheque make payment within due course of period. Thereafter, matter shall be end.

Now in simple way, after dishonor of cheque the holder have right to issue 15 days notice to the issuer that your cheque has been dishoarded due to insufficient fund. So within stipulated period you may make arrangement for the same.

On the other hand, as soon as issuer receives the notice and makes arrangement for the same. Those penal provisions of this section shall not be attracted but he ignores the notice, the penal provisions shall be attracted and the further action shall be taken.

Brief of section

138. 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-

(a) 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.

(b) 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

(c) 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 purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

Comment: As the signature in the cheque is admitted to be that of the accused, the presumption envisaged in Section 118 of the Act can legally be inferred that the cheque was made or drawn for consideration on the date which the cheque bears. Section 139 of the Act enjoins on the Court to presume that the holder of the cheque received it for the discharge of any debt or liability. The burden was on the accused to rebut the aforesaid presumption. K. Bhaskaran, Appellant v. Sankaran Vaidhyan Balan, AIR 1999”

Here, we consider that the drawer has not considered the 15 days notice now following steps shall be considered.

Filling of Criminal Complain

Where the holder receives cheque with bank memo from bank and believes that the cheque is dishonored. The holder of cheque with reasonable believes that such cheque shall be acceptable with the bank within three months from the date of cheque. In view of this, now the cheque shall be accepted or honored. The holder again presents the cheque before the bank.

Meanwhile, the cheque is not accepted or honored by the bank and again the cheque is dishonored. In result of this, the holder has right to issue notice to the issuer for making payment within 15 days from the date of receiving notice from bank.

Where the issuer arranges such amount, on that basis, the holder again presents before bank. The cheque is honored. Now, the matter is end.

Instead of above, the issuer does not make proper arrangement of fund and after 15 days, the cheque is presented again before bank and again the cheque is dishonored.  The holder may right to launch criminal complaint against issuer/ drawer.

Offence by Companies

Where the cheque is issued by the company and the company is in position of drawer/ issuer and the company is in default for the same. The entire board shall be responsible for such default.

As per the provisions of section 141 of Negotiable Instrument Act, the officers of the company shall be liable for such default where such officers are in responsibility for the same. In case where the offence is proved and thereafter they prove that they are not consented for that act. Those officers shall not be considered as defaulter for this section.

For the purpose of this section, the company include partnership firm.

Brief of section along with some important decisions

As per section 141 of the Negotiable Instrument Act 

141. Offences by companies:

(1) If the person committing an offence under  section  138 is a company, every person who, at  the  time  the offence  was committed, was in charge of, and was responsible to,  the company for the conduct of the business of the company, as well as the company,  shall  be deemed to be guilty of the offence  and  shall  be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall  render  any  person  liable to punishment if he proves that  the  offence  was  committed  without  his knowledge, or that he had  exercised  all  due  diligence to prevent the commission of such offence.

Provided  further that where a person is nominated as a Director of a  company  by  virtue  of his holding any office or  employment  in  the  Central  Government  or  State Government or a  financial  corporation  owned  or controlled by the Central Government or the state Government, as  the case may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where  any  offence under this Act has been committed by a company and it  is  proved  that  the  offence  has been committed  with  the  consent  or  connivance of, or is attributable to, any neglect on the part of,  any  director,  manager,  secretary or other officer of the  company,  such  director, manager, secretary or other officer shall also be deemed  to  be guilty of that offence and shall be liable to be proceeded  against  and punished accordingly,

Explanation-For the purposes of this section,-

(a)”company” means any body corporate and includes a  firm  or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.

The Hon’ble Supreme Court has held that merely being a director of a company is not sufficient to make a person liable under section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact and there is no deemed liability of a director in such cases.  AIR 2005 (SCW) 4740; AIR 2005 SC 3512, AIR 2007 SC 1682

Supreme Court has also held that for the directors of the company to be made liable for an offence under sec 138, the complaint must contain specific allegations against directors as to how directors are in charge and responsible for conduct of business of company. Mere allegation in complaint that accused persons are directors and responsible officers of the company is not sufficient. AIR 2007 SC 1454.


Averment in a complaint that accused (partners) at relevant time were in charge of and responsible to the partnership firm for conduct of its business are necessary to initiate process against them for an offence under sec 138 NI Act. In absence of requisite averments in complaint, the offence against accused / partners could not be made out.



Explanation to section 138 makes it clear that ‘debt or other liability’ as mentioned in sec 138 mean a legally enforceable debt or other liability.

Various High courts and the Supreme Court have explained this many a time. “Unless issuance of cheque is pleaded and proved to discharge a legally enforceable liability, dishonor is no default entailing criminal proceedings. Complaint in respect of such a cheque issued as a gift, is not maintainable.”  

1995 Andh LT 468, 1997 Cr LJ 4237 AP; 1998 (3) Bank LJ 279;

“It is only debts alive at the time when the cheque dishonored are issued. Any subsequent claims in favour of the complainant cannot be made the subject of dispute under section 138 NI Act” 1997 VI AD DELHI 585

Supreme Court has held:

“When it is a legally enforceable debt or a liability only then section 138 applies and relationship of the parties is not at all a factor germane to the proceedings”

2004 (1) APEX C.J. 0273; 2004 (1) CR.C.C. 0693


1-   First of all, we should issue legal notice to the defaulter on behalf of complainant within 15 days from the date of dishonoring of cheque. The notice shall be comprised the nature of transactions, the details of cheque, the details of amount, the details of banks etc. the notice must be sent through speed post.

2-   The notice must be in directive way where it must be mentioned that the payment should be made within 15 days. In response of this notice, if the defaulter has made payment, the matter shall be end.

3-   In case the payment is not made within 15 days, the complainant has right to file a criminal case in the court.

4-   The time limit for filling of criminal case is 30 days from the expiry of date of notice.

5-   Thereafter, the court shall hear the argument of advocate of complainant.

6-   The summon shall be served through police station in which area the defaulter is residing. The duty of police under this section just to serve the summon and in case the defaulter or accused does not present, then the warrant is issued, in this regard, the police has right to produce the accused before court.

7-   The offence of section 138 is a bail able offence and the punishment of such offence is for one years only.

8-   In case the warrant issue, the accused shall give surety. The surety documents shall be followings: – a) documents which is proved that he is owner of house or land, b) Ration Card or Elelection Identity Card c) his photo d) summon which is received by him. These entire documents must be submitted in the court. Thereafter, the bond shall also be signed by the accused. Thereafter the bail shall be granted.

9-   Now the complainant files evidence that he has submitted related documents with the complaint. This is called examination of chief of complainant.

10-  Accused or his advocate initiates cross examination.

11-   Where the witnesses of complainant are over then the statement of accused is recorded under section 313 CRPC. Thereafter, the accused may give reply for question and allegation.

12-  Finally, the advocate of complainant and the advocate of accused give arguments.

13-  Now the court gives judgment.

14-  Where the accused is acquitted, the matter is end

15-    If the accused is convicted, he may make application for bail for the period of further appeal. He also submit surety and sing the bond in this regard

16-  Thereafter, within 30 days from the order of court, he may file application for appeal to the session court.

17-  It is notable that the  matter shall not be end within due course, then it shall be moved like district court then session court then high court then supreme court.

18-  Sometimes, the matter has been settled by the parties, in this connection the compounding application shall be filed by the parties. Thereafter the case shall be closed.


Format of Petition


Criminal  Complaint No._______of ________.______________




 Complaint Under section 138 and 142 of the Negotiable Instrument Act, 1881.

 Respectfully Showeth:-

 1.That the accused issued one cheque bearing No. ________ dated________ for a sum of Rs. _________drawn on ______________________ for a   lawful valuable consideration in discharge of his liability in favour of the complainant.

2. That the complainant presented the said cheque lastly on __________ which was returned unpaid by drawee Bank vide returning Memo dated ________ for the reasons `Insufficient Funds`. The said cheque was presented within its validity period and stood dishonoured on presentation.

3.That the complainant got a notice issued through his counsel dated ______ under registered AD cover and UPC   to the accused demanding the amount of the dishonored cheques within 15 days of the receipt thereof which was duly served upon him on (Date) ________. It is submitted that the Registered cover containing the notice was received back as unclaimed as the accused has deliberately avoided the service of the notice, however the notice sent through UPC stood served upon the accused on (Date)_______, the copy of notice with postal receipt/ UPC and envelop containing notice is filed with the complaint.

4.That the accused person has not cared to make the payment of the amount of dishonored cheques to the complainant within 15 days as required under the law as demanded in the notice.

5.That the cause of action for filing the complaint arose to the complainant with in the jurisdiction of this learned court when the accused failed to make the payment of the cheques in dispute to the complainant with in 15 days of the receipt of notice.

6.That the accused is guilty of an offence under section 138 of the Negotiable Instrument Act, 1881 and is liable to be punished under section 142 of the said Act.

It is, therefore, prayed that the accused person be proceeded against and punished in accordance with law as envisaged under section 142 of the Negotiable Instrument Act in accordance with law.




 Place: __________

Dated: _________

List of Documents attached:-

1. Original dishonored cheque No. ______ dated ________ for Rs._______   drawn on _________________

 2. Original returning Memos of the drawee Bank dated ________

3. Copy of Notice dated _________.

4. Postal   and UPC receipt dated _________ and envelop containing notice.

 List Witnesses:-

1. Complainant.

2. Concerned officers of the _____________________ with the records pertaining to the_____________________ of the accused regarding dishonoured cheque No._________ for Rs. _______.



I (Name)_________ s/o Shri ________ aged _______ years, r/o________ do hereby solemnly affirm and declare on oath that the contents of the accompanied application from Para 1 to 6 are true and correct to my personal knowledge and belief and that nothing false is stated therein and also nothing material is concealed there from.

I further declare and verify on oath that the contents of this affidavit are true and correct and nothing material is concealed there from. Verified at ______________ on this _______ day of_________.


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More Under Corporate Law


  1. Arun Kr.Singh says:

    Thanks for post Sir can any one clarify under which law or rules rubber stamp of the Prop. Firm is insisted as must by Banks on Cheque or on any other instructions given to them like NEFT request, other services, What law says on this insistance of rubber stamp or Prop. Firm, Company Seal etc.

  2. Subbarao says:

    Dear Sir,

    Please advise how to proceed in the following case.
    One ‘ABC’ Co. Ltd., issued 3 Cheques to repay it’s Liability to it’s Customer, which bears different dates and different amounts.
    All three Cheques were bounced with remarks “FUNDS INSUFFICIENT”.
    In the above circumstance, how Legal Notice to be served – each one returned cheque with one Notice OR all 3 cheques together in one Notice.
    After the notice served, how we have to file case – each one is one case i.e. 3 cases OR all together as one case.
    Your valuable reply will help us a lot.
    Thanks in advance.

  3. manoj kulkarni says:

    Dear Sir,
    When I reading U R. Good Article then i am finding same my similar matter but not any one match with me. My matter is very critical , i has been given Rs.7610/ Rs.some thing Cheque SBI’s Nashik given For Medclaim Company, dated-26/12/2013 when fund was avalabale then time Rs.15000/- in my Saving A/C. so bank sent memo this company “Cheque dishonored” Insufficient fund” dated 28/12/2013 but above this all matter was Known me when i visit this company and asking me my mediclaim why not pass? and why r u doing late ? then time above reason say company orally with me. No any reason sent me No.phone call, No.email.,No.memo copy or cheque dishonored”letter.etc.
    Not Sending any one reason for me.My Bank Statements on record fund is avalable so please sir what I doing now. My 5 year’s son detected cancer form Oct.2014.till date my spending cash for his hospital expences is 6 to 7 lac.form Oct.2014 to till today.now he is under treatment,i am whole money less now. so how can do claim with company or bank me ? suggest me how to get benifit me ?I am wrong or write. please suggest or guide me Sir.
    Sorry Sir My English is very poor,Please Try to understand me.
    Thanking You
    Manoj Kulkarni 9890834981

  4. sunil bhageria says:

    Dear sir,

    In your article you have referred following case laws but the same are not traceable by us. Could you please provide these cases laws or the location/site from where we can get the same (full text of the case law)as we are facing one similar case.It would be immense help for us.

    1.1995 Andh LT 468, 1997 Cr LJ 4237 AP; 1998 (3) Bank LJ 279;

    “It is only debts alive at the time when the cheque dishonored are issued. Any subsequent claims in favour of the complainant cannot be made the subject of dispute under section 138 NI Act” 1997 VI AD DELHI 585

    2.Supreme Court has held:

    “When it is a legally enforceable debt or a liability only then section 138 applies and relationship of the parties is not at all a factor germane to the proceedings”
    2004 (1) APEX C.J. 0273; 2004 (1) CR.C.C. 0693

  5. J.Janarthanan says:

    Good article. The same is narrated/briefed perfectly about the implication of dishonored cheque(s) both civil and criminal liability.

    Many Thanks,


  6. Kapil says:

    Excellent article.
    Could you also throw some light where the issuer of the cheque puts a STOP payment? Is that not an offence under the act?



  7. RAVISH says:

    Dear Sir,

    Eventhough, best of the information is covered in this article, it is no where mentioned as to whether the liabilities mentioned i.e, the amount of the cheque is to be mentioned in the income tax returns. Is it compulsory to mention the transaction amount in the income tax return?

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