Dishonour of cheque

February 17, 2024
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In the realm of financial transactions, the dishonour of a cheque is a grave matter, carrying significant legal repercussions under Section 138 of the Negotiable Instruments Act. This provision has been enacted to safeguard the integrity of commercial dealings and to ensure the efficacy of negotiable instruments such as cheques.

Dishonour of Cheque Meaning:

Dishonour of a cheque occurs when a cheque presented for payment is returned by the bank unpaid due to various reasons such as insufficient funds, account closure, mismatched signatures or post-dated cheques. Such an event not only disrupts the intended transaction but also raises questions about the credibility and financial stability of the issuer.

Section 138 of Negotiable Instrument Act:

Section 138 of the Negotiable Instruments Act, 1881, specifically addresses the issue of dishonour of cheques. This provision imposes criminal liability on the drawer of the dishonoured cheque, making it an offense punishable with imprisonment and/or fine. The primary objective behind the enactment of this section is to deter individuals from issuing cheques without ensuring the availability of funds in their accounts.

Section 138 for Cheque Bouncing:

The term “cheque bouncing” has become synonymous with the dishonour of cheques under Section 138 of the Negotiable Instruments Act. It reflects the legal consequences faced by individuals who issue cheques without adequate funds, thereby causing inconvenience and financial losses to the payee.

Legal Ramifications:

Upon the dishonour of a cheque, the payee or the holder in due course of the cheque is entitled to initiate legal proceedings against the drawer under Section 138. The aggrieved party must issue a demand notice to the drawer within thirty days of the receipt of the information regarding the dishonour. Subsequently, if the drawer fails to make the payment within fifteen days of receiving the notice, a complaint can be filed before the appropriate court.

Procedural Requirements:

To establish the offense under Section 138, certain procedural requirements must be fulfilled. These include presenting the cheque within a specified period of its validity, ensuring that it is returned unpaid by the bank, and issuing a demand notice to the drawer. Failure to adhere to these procedural aspects may weaken the case against the drawer.

Penalties and Remedies:

Upon conviction under Section 138, the drawer may face imprisonment for a term which may extend to two years, or with a fine which may extend to twice the amount of the cheque, or with both. Additionally, the drawer may be liable to compensate the payee for the amount mentioned in the dishonoured cheque along with any accrued interest and legal expenses.


In conclusion, the dishonour of a cheque under Section 138 of the Negotiable Instruments Act signifies not only a breach of trust but also a violation of legal obligations. It underscores the importance of financial prudence and accountability in commercial transactions. By imposing stringent penalties, the law seeks to deter individuals from engaging in fraudulent practices involving negotiable instruments. Therefore, it is imperative for all stakeholders involved in cheque transactions to exercise due diligence and adhere to the legal framework prescribed under the Negotiable Instruments Act.

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