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The Legal Dynamics of Dishonour of Cheques in India: A Detailed Overview

The Legal Dynamics of Dishonour of Cheques in India: A Detailed Overview

The surge in trade and commerce in India has led to a corresponding increase in the use of cheques, resulting in a rise in cheque bouncing disputes. The Negotiable Instruments Act, 1881 (referred to as the “Act”) plays a pivotal role in regulating these transactions, aiming to enhance the efficiency of banking operations and ensure reliability in business dealings involving cheques.

Understanding Cheque Dishonour

When a person draws a cheque on a bank account maintained by them, and the cheque is returned unpaid due to insufficient funds or exceeding the arrangement made with the bank, it constitutes cheque dishonour for insufficiency of funds. The cheque must be issued in discharge of a debt or liability. It should be presented to the bank within six months of issuance or before its expiry date, whichever is earlier. Upon being informed by the bank about the bounced cheque, the payee (the person to whom the cheque is made payable) must send a written notice to the drawer (the person who issued the cheque). If the drawer fails to make the payment within 15 days of receiving the notice, the dishonour of the cheque is considered an offence.

Bailability of the Offence

Cheque dishonour is a non-cognizable offence, meaning a police officer cannot arrest the accused without an arrest warrant. Additionally, it is a bailable offence.

Jurisdiction for Filing Cases

If the cheque is delivered for collection through an account, the case will be tried by a court not inferior to a Metropolitan Magistrate or a Judicial Magistrate, within the local jurisdiction where the branch of the bank maintaining the payee's account is situated. If the cheque is presented for payment over the counter, the case will be tried by a court not inferior to a Metropolitan Magistrate or a Judicial Magistrate, within the local jurisdiction where the branch of the bank maintaining the drawer's account is situated.

Presentation of Cheque

A cheque can be presented for encashment on any number of occasions within its validity period. Each presentation and dishonour of the cheque gives rise to a fresh right, and not a cause of action. The cause of action arises only on failure to pay after notice.

Special Cases: Post-Dated Cheque, Stop Payment, and Account Closed

A post-dated cheque has a future date written on it instead of the date it was written. If on the date of the cheque, a liability exists or the amount has become legally recoverable, the Act applies. In the case of "stop payment," where the drawer instructs the bank to stop payment, an offence under Section 138 of the Act would not be established. "Account closed" refers to the return of a cheque when a bank account has been closed by the bank, similar to a situation where the cheque is returned due to insufficient funds.

Signature Mismatch

If the signature of the drawer does not match, it constitutes an offence of cheque dishonour.

Presumption of Notice

Sending notice to the accused by registered post, correctly addressed to the drawer of the cheque, deems the service of notice to have been effected.

Presentation of Blank Cheque

If a signed blank cheque is voluntarily handed over to a payee for some payment, the payee may fill in the amount and present the cheque.

Interim Compensation

The court may order the drawer of the cheque to pay interim compensation to the complainant, not exceeding 20% of the amount of the cheque. The Supreme Court, in Rakesh Ranjan Shrivastava v. The State of Jharkhand and Another, REED 2024 SC 03001, held that the power of the court to grant interim compensation is discretionary and needs to be decided after evaluating the merits of the case.


The prescribed sentence is up to two years, or a fine that may extend to twice the amount, or both.

Compromise and Quashing

With the consent of both parties, the offence can be compromised. The court also has the power to close the proceedings and discharge the accused if the complainant has been compensated. To quash proceedings, the accused needs to file a quashing petition under Section 482 CrPC and prove that the trial would be an abuse of the court's process.

Online Proceedings and Mediation

Numerous cases under Section 138 of the Act, dealing with cheque dishonour, have been heard online, depending on the facts and circumstances of each case. Mediation can be used to settle such cases, and the Courts may refer a criminal compoundable case under Section 138 to mediation.

Nature of Proceedings

Section 138 of the Act is considered a civil issue disguised as a criminal one. It is quasi-criminal in nature, arising from a civil dispute but potentially leading to criminal consequences.

Appellate Proceedings

In case of an appeal against conviction, the Appellate Court can order the drawer to deposit at least 20% of the compensation or fine awarded by the trial court.

In conclusion, the provisions of the Negotiable Instruments Act, 1881, particularly Section 138, form a robust legal framework for addressing cheque bouncing cases in India. It is essential for businesses and individuals to comprehend these provisions to ensure the smooth and reliable use of cheques in transactions.


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