Section 138 OF Negotiable Instrument Act, 1881.

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Usage of cheques, bills of exchange, promissory notes commonly known as negotiable instruments has become very common nowadays. With the increase in usage of these systems, there has been an increase in frauds and other unacceptable methods. To keep a check on all these and save the innocent people from such activities we need laws. The Act that deals with such kinds of negotiable instruments is known as THE NEGOTIABLE INSTRUMENTS ACT 1881. 


This Act is traced back to 1866 when the 3rd Indian Law Commission drafted this Act. However, due to objections raised by the mercantile committee because of its deviation from English Law, it could not be adopted. In 1877 the bill was redrafted. Further, it was reviewed by a select committee. In spite of the efforts, the bill failed to succeed. After three successive failures, the fourth draft was presented and accepted in the council which then turned into law in 1881 becoming the 26th Act of the year 1881. As the name suggests this Act purely talks about cheques, bills of exchange, promissory notes. It talks about drawee, drawer, drawee in case of need, acceptor, acceptor of honour, payee, holder, the holder in due course, payment in due course, inland instrument, foreign instrument, negotiable instruments etc. This Act briefs us about the liabilities of different people involved in the transaction. 

What is dishonour by payment?

Drawer is the person who writes the cheque. If Drawer fails to make the payment by the due date or his funds in his account aren’t sufficient which would lead to cheque bounce is known as dishonour by non-payment. When this happens, the drawer is liable to the holder and is restored with his duties of payment. In such cases, a notice of dishonour is provided to the drawee. 

What is Cheque? 

A cheque is a negotiable instrument that has an unconditional order to a bank or drawee to pay a certain amount mentioned in the instrument from the drawer’s account to the person whose name is mentioned in the instrument, or to the bearer. 

Salient Feature of Cheques as per Section 6:

  • Involvement of three parties
  • In written and signed by the drawer
  • Can be honoured by the bank only when a valid date is mentioned
  • Payable on demand
  • Amount shall be mentioned both in figures and in words. If these two do not match, according to section 18 of Negotiable Instruments Act, 1881; the amount written in words is considered. 

What are the different types of cheques:

  • Open cheque1: This cheque avails the facility to get the cash at the bank counter.
  • Bearer Cheque: The person who is holding the cheque will be paid at the bank counter.
  • Crossed Cheque: The amount thus mentioned will be credited to the person’s bank account. 
  • Order Cheque: the word bearer will be cancelled.
  • Electronic Cheque: It has the same format as that of a hardcopy cheque, but this operates with digital signatures. 
  • A post-dated cheque: A cheque which is drawn prior to the date mentioned and issued prior to the date mentioned is known as post-dated cheque. 

Parties of Cheque: 

  1. DRAWER: In the case of cheques, the person who writes out a cheque is known as a drawer. 
  2. DRAWEE:  the bank which the drawer mentioned is the drawee. 
  3. PAYEE: The person to whom the cheque has been written is known as the payee. 

What is Section 138 of NI Act?

Section 138 of NI Act deals with all such cases involving dishonour of a cheque. When the drawee i.e. the banker returns the cheque stating the reason as insufficient funds or exceeding the limit of withdrawal it is known as dishonour of cheque. However, there are many genuses to this term. These include the stoppage of cheque by drawer, mismatch of signature, the closing of a bank account etc. In any of these reasons, the payee can bring a suit against the drawer if he fails to pay the amount due within fifteen days of issuance of the notice of dishonour. 

However, when there is a dishonour of cheque, the payee is under a duty to send a notice to the drawer in writing or oral stating the same. Through various case laws, it is established that a court has jurisdiction if the bank where dishonour of cheque happened lies in its jurisdiction. Further, summons issued by magistrate cannot be recalled, if the drawer fails to receive the notice of dishonour, he has to do the payment within fifteen days of receiving the summons; if he fails to do so he cannot claim that he failed to receive the notice of dishonour. In the statutory notice, the amount mentioned in the cheque alone should be mentioned and if one wants to claim interest or any other expenses, they have to file a civil case. 

When a cheque issued by a company is dishonoured, the company along with its directors has to be held liable. In case of closing of bank account, mismatch of signature, stoppage by drawer, the holder can file a suit under section 138 of NIA as these are genus. An amendment has taken place in the year 2018 giving power to the court to order the accused to pay interim relief of 20% of the total amount within 60 days from the date on which such order is given by the trial court. In case of an appeal, the appellate court can order the appellant to deposit a further amount of 20% apart from the interim compensation. 

Dishonour of a cheque is a criminal offence in India. This section attracts imprisonment up to 2 yrs or fine of double the amount. In a few cases it can be both. This offence is bailable, compoundable and non-cognizable.

What are the necessary conditions that have to be met to file a case under section 138 of NI Act?

  • The cheque has been presented in the bank within 6 months from the date on which it has been drawn or before its expiry date
  • Post dis-honour of cheque, payee or holder in-course should send a notice to the drawer stating the same within 30 days of receiving this information from the bank.
  • Drawer fails to pay the amount defaulted within 15 days of receipt of notice. 

Dis-Honour by Non-payment: 

According to section 92 of NIA, when there is a default in payment committed by the drawee of the cheque, acceptor of the bill or maker of the note even after duly informed about the payment, it is known as dis-honour by non-payment. If the drawee fails to pay the same on the due date, the drawer has the right to bring legal action against the drawee. Dishonour of cheques can also lead to legal action. In a few jurisdictions, dishonour due to insufficient funds is seen as a criminal offence. However, dishonour by non-payment can be for any negotiable instrument whereas to the contrary, dishonour by non-acceptance is only for bills of exchange. Section 93 of NIA claims that when there is dishonour by non-payment, a notice of dis-honour has to be sent by the holder to the drawer. This section is not mandatory for all the negotiable instruments. According to section 94, notice has to be sent to the drawer, in case he is dead to his legal representative, in case he is insolvent to his assignee. The notice can be either oral or in writing. The notice can be sent through mail or any other means mentioning the dishonour of the negotiable instrument. 

Landmark cases on Dishonour of Cheques

  1. K.Bhaskaran V. Sankaran Vaidhyan Balan2: An offence can be considered under section 138 only if the following conditions are fulfilled:
  • Cheque to be drawn
  • Cheque to be presented in the bank
  • Cheque has to be returned unpaid by the drawee
  • Sensing notice of dishonour to the drawer
  • Failure of compensation by the drawer within fifteen days of issue of notice of dishonour.

It is not necessary that all these acts should take place at the same location. If these acts have taken place at various locations, the complainant has the freedom to choose the court of his choice having jurisdiction of any of those places. Hence, the court held that it is very redundant to raise the question of jurisdiction under this section as its jurisdiction scope is very wide.

  1. Harman Electronics Pvt. Ltd. V. National Panasonic India (P) Ltd.3:  Appellant has his business at Chandigarh. He issued a cheque to the respondent which got dishonoured at Chandigarh. Respondent has his bank branch at Chandigarh. However, its main branch is in Delhi.  Respondent issued a notice of dishonour which was received by the appellant at Chandigarh. Due to the failure of the appellant to pay the amount within fifteen days, the respondent/complainant filed a case in New Delhi. Respondent apart from having his bank’s headquarters at Delhi, carries his business at Delhi. Against the order of Add. Miscellaneous Judge, a criminal petition was filed in the High Court which was rejected. AS a result, a petition was filed in the Sc. The only question which arises in the case as observed by SC is that the sending of notice from Delhi form the cause of action or not. In this case, it was held that Clause (b) and (c) were to be read together. Issuance of notice alone does not rise the cause of action but the communication of the same does. Further, the jurisdiction of that court is to be considered under whose cause of action arose. It was stated by the Hon’ble Supreme Court that jurisdiction cannot be decided based on the principle. It is crpc which decides the jurisdiction. In cases related to Sec 138 of negotiable instruments act, 1881; section 177 of Crpc has to be followed. This judgement overruled the above case. As per this section, Delhi High Court did not have jurisdiction and the case should be transferred from additional sessions judge to court of district and sessions judge, Chandigarh according to article 142.  
  2. Dalat Prasad V. Rooplal Jindal & Ors4.:  In this case, it was held that once the issuance of summons by the magistrate under section 203 of Crpc is done, he cannot recall the summons. 
  3. Dashrath Rupsingh V. State of Maharashtra5: In this case, the Supreme court reviewed the decision taken in K.Bhaskaran V. Sankaran Vaidhyan Balan case. It held that the place where the cheque has been dishonoured is where the cause of action took place. Without a cause of action, a suit is not maintainable. Hence only the court under whose jurisdiction the bank falls where the dishonour happened will have the jurisdiction to maintain a case under section 138 of NIA. 

Statutory Notice

  1. C.C.Alavi Haji V. Palapetty Muhammed6: In case if the drawer fails to receive the notice of dishonours sent by the payee through the post, can make the payment within fifteen days of receiving of summons by the court and submit the receipt of the same to the court after which the complaint will be dismissed. However, any individual who fails to pay even after fifteen days of receiving summons cannot claim that they could not be compensated because they failed to receive the notice of dishonour. 

When a post-dated cheque is cancelled before the date mentioned on it: 

  1. Goa plast P. Ltd. V. Chico Ursula7: In this case, the drawer in order to stop the cheque issues instructions to the drawee bank to not make the payment. In this case, SC held that if stoppage of cheque is taken out of the purview of Section 138. The reliance on cheques will collapse. 

Closing of Bank account in order to escape from the payment: 

  1. NEPC Micon Ltd. V. Maqma Leasing Ltd.8: In this case, it was held that this is a genus of dis-honour of cheque. Any reason ranging from bank closure to stoppage of cheque, from insufficient funds to refer to drawer, from the image not found to signature mismatched, all these reasons are accounted as genus and hence, a complaint can be filed under section 138 of Negotiable instruments Act, 1881. 

Will asking for interest along with the actual amount in the statutory notice make it faulty?

  1. Suman Sethi V. Ajay K. Churiwal9: According to section 138 of NIA, if the amount is compensated within fifteen days of issuance of the notice, the drawer is free from liability. Further, if they want any interest or any other expenses to be met, they should file a civil suit. Hence, mentioning of any amount but the amount mentioned in the cheque in the statutory notice will make it faulty. 
  2. Pavan Kumar Ralli V. Maninder Singh Narula10: A handwritten notice constitutes the statutory notice if all the mentions under section 138 of NIA are followed. 
  3. Aneeta Hada V. Godfather travels and tour11s: In this case, it was held that criminal liability in such cases is primarily on the drawer-company and the officers will be liable only when the provisions mentioned under section 141 of NIA are satisfied, Hence, mentioning of the company as the accused is very vital while filing a suit. 

It should be noted that if a cheque issued by a company is dishonoured, then all its directors can be held guilty on the very simple reason that a company is run by individuals. So, all the individuals who are responsible for its transactions can be held liable. Punishment under NIA section 138 can range from 2 years of imprisonment to double the amount mentioned in the cheque. 

  1. Barender Kumar Beru V. Chottan Mukherjee12In this case, it was held that notice does not necessarily have to be in writing. It has to be communicated to the drawer for which the holder can use any means. 
  2. Rakesh Namkumar V. Narayan Dhondu Joglekar13:  In this case, it was observed that the conditions and facts under which dishonour took place have no importance. If there was a dishonour, the holder can file a case under section 138 of NIA. 



Dishonour of a cheque is a criminal offence in India. Punishment includes imprisonment up to 2 yrs or fine double the amount defaulted or in a few cases both. When there is a dishonour of cheque, the payee has a right to take action against the drawer through a suit. Payee is under an obligation to send a notice of dishonour to the drawer. If the drawer fails to pay the amount within 15 days of receiving the notice, the payee can approach the court. However, if the drawer does not receive the notice, he/she can pay the amount on receiving the summons. If he fails to do so, he cannot defend himself in the court saying he did not receive the notice. Notice can be either oral or in writing. Dishonour of cheque can happen in any of the following cases: insufficient funds, change of bank account, the closing of bank account, unmatched signature, directing the drawee to not to pay. 


1.  Shivam Goel, The Negotiable Instruments Act, 1881: Critical Analysis,(Jan,2016),

2.  K. Bhaskaran V. Sankaran Vaidhyan Balan, (1999) 7 SCC 510.

3.   Harman Electronics Pvt. Ltd. V. National Panasonic India (P) Ltd., (2009) 1 SCC 720.

4.   Dalat Prasad V. Rooplal Jindal & Ors, AIR 2004 SC 4674

5.  Dashrath Rupsingh V. State of Maharashtra, (2014) 9 SCC 129.

6.  C.C.Alavi Haji V. Palapetty Muhammed, (2007) 7 SCR 326.

7.  Goa plast P. Ltd. V. Chico Ursula, (2003) 3 SCC 232.

8.  NEPC Micon Ltd. V. Maqma Leasing Ltd, (1999) 4 SCC 253.

9.  Suman Sethi V. Ajay K. Churiwal, AIR 2000 SC 828.

10.  Pavan Kumar Ralli V. Maninder Singh Narula, AIR 2014 SC 3512.

11.   Aneeta Hada V. Godfather travels and tours, (2012) 5 SCC 661.

12.  Barender Kumar Beru V. Chottan Mukherjee, 2009 (83) AIC 795.

13.  Rakesh Namkumar V. Narayan Dhondu Joglekar, 1994(3) BomCR 355.


Anusha Nookala

Student, Symbiosis Law School Hyderabad

Anusha Nookala is a student at Symbiosis Law School, Hyderabad currently pursuing BBA LLB. She is a corporate law enthusiast.  She is an effective and attentive speaker and listener, highly organized and detail-oriented individual. For any Clarifications, feedback, and suggestion, you can reach her at

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