Dishonour of Cheque in India

Contributed by Deepak Miglani

A great hardship is caused to a person if a cheque issued in his favour is dishonoured due to the insufficiency of funds in the account of the drawer of the cheque. To discourage dishonour Cheque Bouncing is made punishable as offence under Negotiable Instrument Act. The drawer can be awarded two years of imprisonment and fine may extend to twice the amount of the cheque or both. These are the following essentials of Section 138 for making the dishonour of cheque a offence:-

1. Cheque should have been issued for the discharge , in whole or part, of any debt or other liability.
2. The cheque should have been presented within period of six months or within period of its validity, whichever is earlier.
   Note:- Cheque may be presented any number of times for collection with in its validity.
3. The payee or the holder in due course should have issued a notice in writing to the drawer with in thirty days of the receipt of information by him from the bank regarding the return of cheque as unpaid.
4. After the receipt of the said notice by the payee or the holder in due course, the drawer should have failed to pay the cheque amount with in fifteen days of the receipt of the said notice.
   Note:- Notice of dishonour is unnecessary when the party entitled a notice cannot after due search be found(Sec.98).
5. On non-payment of the amount due on dishonoured cheque within fifteen days of the receipt of notice by the drawer, the complaint should have been filed with in one month from the date of expiry of grace time of fifteen days, before a Metropolitan Magistrate or not below the rank of a Judicial Magistrate of the First Class. The cognizance of a complaint may be taken by the court after the prescribed period, if the complaint satisfies the court that he had sufficient case for not making complaint within such period.
6. The Offence under this act is compoundable.

Cheque may be presented again and again: A cheque may be presented any number of times during the period of validity. The cause of action, however, only once. The cause of action arises, after the issue of statutory notice and non-compliance with demand.
Dishonour with remarks “Account Closed”, “Refer to the drawer” or “Stop payment” instructions: Dishonour due to insufficiency of funds has to be interpreted liberally. Dishonour due to remarks “Account closed”, “Refer to the drawer” or “Stop payment” of the cheque may be deemed to be covered by the provision contained in Section 138.
Stopping payment of a cheque: Dishonestly stopping payment of the cheque, and then failing to pay the amount within 15 days after due notice from the payee amounts to an offence within the meaning of Section 138.

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