AN ANALYSIS OF LAW OF DISHONOUR OF CHEQUES: A

COMBINATION OF CIVIL AND CRIMINAL LIABILITY

4.4 Indian Penal Code

Submitted by
KRISHNA KANT JAIN
UID No.- SM0115022
Second Year Fourth Semester

National Law University, Assam

 Content
Table of Cases…………….…………………………………………………………………..iii
Table of Statutes……….…..…...………………………………...………………………….. iii
Table of Abbreviations…………………..………...………….................................................iii
Introduction……………………………………………………………………………………2
Aim and Objective.…………………………………………………………………………….3
Scope and Limitations………………………………………………………………………....3
Review of Literature……...………………………………...………………………………….3
Research Questions ………………………………...…………………………………………4
Research Methodology………………..……………………………………………………….5
Cheque- Position in Law……………………………………………………………………..5
Dishonour of Cheque……………………...............................................................................8
Offences Under IPC…………………………………………………………………………
12
Cheating...…………………………………………………………………………………...12
Forgery………………………………………………………………………………………14
Conclusion……………………………………………………………………………………16
Bibliography…………………………………………………………………………………...v

ii
Table of Cases
Anil Kumar Sawhney v. Gulshan Rai
Baijnath Sahay v. Emperor
Keshavji Madhavji v. Emperor
Laxmi Dyechem v. State of Gujrat
Mahendra A Dadia v. State of Maharashtra
Mainuddin Abdul Sattar v. Vijay D. Salvi
Om Prakash Maniyar v. Swati Bhide
P.J. Agro tech ltd. v. Water Base Ltd
Rakesh Porwal v. Narayan Joglekar
Ram Sarup v. Hardeo
Vasantrao Khode v. Laxmikant Shantilal Choudhari

Table of Statutes
1860- Indian Penal Code
1881- Negotiable Instrument Act
1882- Bills of Exchange Act
1985- Bills of Exchange Act of Canada

Table of Abbreviation
Sr. No. Abbreviation Expansion
1. AIR All India Reporter
2. All Allahabad
3. Anr. Another
4. Bom Bombay
5. CrLJ Criminal Law Journal
6. HC High Court
7. ibid Ibidem
8. IPC Indian Penal Code
9. MahLJ Maharashtra Law Journal
10. NI Negotiable Instrument Act

iii
11. Pp Pages
12. Raj Rajasthan
13. SCC Supreme Court Cases
14. Vol. Volume

iv
 Abstract
Cheques are a type of bill of exchange  and were developed as a way of making payments
without the need to carry large amounts of money. A dishonoured cheque cannot be
redeemed for its value and is worthless; they are also known as an RDI (returned deposit
item), or NSF (non-sufficient funds) cheque. Cheques are usually dishonoured because the
drawer’s account has been frozen or limited, or because there are insufficient funds in the
drawer’s account when the cheque was redeemed. A cheque drawn on an account with
insufficient funds is said to have  bounced  and may be called a rubber cheque. Banks
typically charge customers for issuing a dishonoured cheque, and in some jurisdictions, such
an act is a criminal action. A drawer may also issue a stop on a cheque, instructing the
financial institution not to honour a particular cheque. Various provision under the
Negotiable Instrument Act, 1881 also provides the remedy for the dishonour of cheques. The
drawer may also be charged under the various provisions of IPC.

1
Chapter one
Introduction
Advent of cheques in the market have given a new dimension to the commercial and
corporate world, it’s the time when people have preferred to carry and execute a small piece
of paper called cheque than carrying the currency worth the value of cheque. Dealings in
cheques are vital and important not only for banking purpose but also for the commerce and
industry and the economy of the country. But pursuant to the rise in dealings with cheques,
the practice of giving cheques without any intention of honouring them has also risen. In case
a cheque is issued by a person in liquidation of his debt or liability, and same is dishonoured,
then it not only created a bad taste, but can also result in harassment and can cause damage to
the person to whom the cheque may have been issued.

Since business activities have increased, the attempt to commit crimes and indulge in
activities for making money have also increased. Thus, besides civil law, an important
development both in internal and external trade is the growth of crimes and it has been found
that the banking transactions and banking business is every day being confronted with
criminal action and this has led to an increase in the number of criminal cases relating to or
concerned with the banking transactions.

In India, cheques are governed by the Negotiable Instrument Act, 1881, which is largely a
codification of English Law on the subject. Before 1988 there was no effective legal
provision to restrain people from issuing cheques without having sufficient fund in their
account or any stringent provision to punish them in the event of such cheque not being
honoured by their bankers and returned unpaid. Although, on dishonour of cheques there is a
civil liability accrued, however in reality the processes to seek civil justice becomes
notoriously dilatory and recovered by way of a civil suit takes an inordinately long time. To
ensure prompts remedy against degaulter and to ensure credibility of the holders of the
negotiable instrument a criminal remedy of penalty was inserted in Negotiable Instrument
Act, 1881 in form of Banking, Public Financial Institutions and Negotiable Instrument laws
(amendment) Act, 1988 which were further modified by te Negotiable Instrument
(Amendment and Miscellaneous Provisions) Act, 2002.

Of the ten sections comprising chapter XVII of the Act, section 138 creates statutory offences
in the matter of dishonour of cheques on the ground of insufficiency of funds in the account
maintained by a person with the banker. Section 138 of the Negotiable Instrument Act, 1881

2
is a Penal Provision wherein if a person draws a cheque 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, on the ground to be paid from that the account by an agreement made with the
bank, such person shall be deemed to have committed an offence.

Section 238 of the act can be said to be falling in the acts which are not criminal in real sense,
but are acts which in public interest are prohibited under the penalty or those where although
the proceeding may be in criminal form, they are in reality only a summary mode of
enforcing a civil right. Normally in criminal law existence of guilty intent is an essential
ingredient of a crime. However, the legislature can always create an offence of absolute
liability or strict liability where ‘mens rea’ is not at all necessary.

Aim and Objective

This Project aims at studying the various aspect related to dishonour of cheque and liablity
arsing therefrom. It begins by defining the concept of dishonour of cheques and then
proceeds to the liability arising out of such dishonour and the laws related thereto. The
ultimate objective is to understand the liability and the penal provisions for dishonour of
cheques and then to understand its application in the Indian context.

Scope and Limitation

The scope of this project has been restricted to the broad topics like the laws applicable and
the procedures followed. The author has limited the scope to a very conceptual and
theoretical understanding of dishonour of cheque and liability arising therefrom.

Literature Review

1. Ranbir Singh, A study of Negotiable Instrument in India, (Ph. D. Thesis,

Maharshi Dayanand University)

3
The author, in a simple and lucid style, has very exhaustively dealt with the subject running
into 7 chapters. A detailed synopsis at the beginning facilitates the easy location of topics by
the author. Emphasis and focus of the author has throughout been on the dishonour of
cheques therefore the aspect of the Negotiable Instrument act, 1881 have been given a go-by
for the better. In the first chapter he gave a brief introduction of Negotiable Instrument. In
second chapter he dealt with definition, nature and parties to the negotiable Instrument. In
third Chapter, he dealt Dishonour of Negotiable Instrument. In fourth chapter he dealt with
the procedural aspect. Fifthly he talks about the jurisdiction, sixthly liabilities and legal trend
and in the seventh chapter he finally concluded the theses.

2. Anjana Dave & Dr. R V Mehta, An analytical study of the provision relating
to dishonour of cheques under chapter XVII of the Negotiable Instrument
Act, 1881,

It is the article published in the journal of Pacific Business Review International. It mainly
talks about the twelfth chapter of Negotiable Instrument Act. It is focussed on the 2002
amendment through which chapter 12 was inserted the purpose and objectives of the
amendment was dealt in this article. He further talks about the judicial perspective to this
issue. He also talks about the recent development in the Negotiable Instrument Act. It is very
precise and knowledge rich article about the Negotiable Instrument.

3. Workshop summary on Recent Trend in Section 138 of the Negotiable

Instruments Act

It is the summary of the workshop proceeding on Negotiable Instrument. It talks about the
2002 amendment. Then it moves to the offence under s. 138 of Negotiable Instrument act. It
briefly talks about all the technicality of the act. It very well explained the concept with the
help of various case laws. It talks about every aspect of the act e.g. Punishment, jurisdiction,
Procedure, Notice etc.

Research Question
The research questions are-
1. What is Cheque?
2. What is Dishonour of Cheque?

4
 3. What is the penal provision in case of dishonour of cheque?

Research Methodology
Researcher conducted Doctrinal type of research to collect proper data and gather appropriate
information. The use of library sources and internet sources has greatly supplemented the
research. Various books pertaining to the subject have been immensely helpful in guiding the
research.

To ensure a quality study of the subject matter, the researcher collected the Secondary type of
data. Though primary data is very valuable and precious; still the importance of the
secondary data cannot be overlooked. So, the researcher collected secondary data through
various books, articles, journals and other sources.

Cheques- Position of Law

The word cheque has been derived from the Persian word ‘check’, a written vow to pay for
goods when they were delivered to avoid money having to be transported across dangerous
terrain1. During the 1st century AD, banks in Persia and surrounding regions issued letters of
credit known as Sakks, which are believed to have been the basis of the modern cheque2.

Up till about 1770s, bankers adhered to the original method of issuing promissory notes,
payable to the bearer on demand3. But about this time they changed the form of making the
purchases of the bills. When their customers brought them bills to discount, instead of giving
them their promissory notes payable to bearer on demand, they wrote down the value of the
value of the bill to the credit of their customers in their books. They then gave them books
containing a number of printed forms. These forms were called “cheques”, and were bills of
exchange, drawn upon the banker, payable to bearer on demand4.

Payment instruments and mechanisms have a very long history in India. The earliest payment
instruments known to have been used in India were coins 5. An instrument in use during the
Muslim period was the “Pay order”. Pay orders were issued from the Royal Treasury on one

1
R.N Chaudhary, Laws Relating to Cheques: New Horizons, Digital Signature, E-cheques and Dishonour of
Cheques as Penal Offence, Deep & Deep Publications Pvt. Ltd., New Delhi, at pp. 1.
2
Available at http://www.infosys.com/finacle/solutions/thought-papers/Documents/Evolution-of-cheques-and-
paper-based-clearing-in-India.pdf, accessed on April 10, 2017
3
Henry Dunning Macleod, The Theory and Practice of Banking, Ed. Second, Vol. I, 1866, at pp. 120.
4
ibid
5
Available at http://www.rbi.org.in/scripts/PublicationsView.aspx?id=155, accessed on April 10, 2017

5
of the District or Provincial treasuries. They were called Barattes and were akin to present
day drafts or cheques6.

The private banks and the Presidency Banks introduced other payment instruments in the
Indian money market. Cheques were introduced by the “Bank of Hindoostan”, the first joint
stock bank established in 17707. The Calcutta Clearing Banks’ Association, which was the
largest bankers’ association at that time, adopted clearing house rules in 19388. After the
setting up of Reserve Bank of India in 1935, the Clearing Houses in the Presidency towns
were taken over by the Reserve Bank of India9.

Over the centuries, innovations increased the sophistication of cheques. This sophistication is
perhaps surprising given the cheque’s apparently simple nature: a piece of paper with a few
“magic words” such as “pay to the order of” written across it10.

The term ‘cheque’ has been defined under Section 6 of the Indian Negotiable Instruments
Act, 188211 (the ‘Act’). According to this section, a cheque is a bill of exchange drawn on a
specified banker not expressed to payable otherwise than on demand.

Section 73 of the British Bills of Exchange Act, 1882, embodies a similar definition of
cheque. It is ‘a bill of exchange drawn by a banker payable on demand’12.

The same words have been used to define ‘cheque’ in Section 165 (1) of the Canadian
Statute13.

The Uniform Civil Code, published in 1952 defines ‘cheque’ as14:

 a draft, other than a documentary draft, payable on demand and drawn on a bank; or
 a cashier’s check or teller’s check.

6
ibid
7
ibid
8
Kanhaiya Singh & Vinay Dutta, Commercial Bank Management, McGraw Hill Education (India) Pvt. Ltd.,
New Delhi, at pp. 140.
9
ibid
10
Stephen Quinns & William Roberds, The Evolution of the Check as a Means of Payment: A Historical Survey,
Economic Review, Federal Reserve Bank of Atlanta, Number 4, 2008, at pp. 1
11
Section 6, Negotiable Instruments Act, 1882 of India
12
Section 73, Bills of Exchange Act, 1882 of U.K
13
Section 165 (1), Bills of Exchange Act, 1985, Canada
14
Article 3-104, Uniform Civil Code

6
An instrument may be a check even though it is described on its face by another term, such as
“money order.” Inherent in its definition, a cheque is a promise to pay which can be taken by
the bearer or endorsee and cashed or converted on demand into federal reserve notes
equalling the value stated on the cheque15.

Cheque is a species of Bills of Exchange16. On a conjoint reading of Section 5 of the Act

which defines Bills of Exchange and Section 6, a more detailed definition of ‘cheque’ can be
found to be:

“A cheque is an unconditional order in writing, signed by the person giving it, requiring the
bank to whom it is addressed to pay on demand a certain sum of money to, or to the order of,
a specified person or to bearer”.

While a cheque has many features in common with bills and is in many respects governed by
the same rules and principles and is often taken to be included in the general term ‘bill’ in
enactments, it has several distinct characteristics that differs from bills17.

1. A cheque must always be drawn on bank or a banker, and is payable immediately on

demand without any days of grace18. A bill of exchange is a negotiable instrument in
writing containing an instruction to a third party to pay a sum of money at a
designated future date or on demand. A cheque, on the other hand, is a bill of
exchange drawn on a bank by the holder of an account payable on demand. Thus, a
cheque under section 6 of the Act is also a bill of exchange but it is drawn on a banker
and is payable on demand. It is, thus, obvious that even though a bill of exchange is
drawn on a banker, if it is not payable on demand, it is not a cheque19.
2. A cheque requires no acceptance apart from prompt payment. It is presented for
payment only. Accordingly, there is no Privity of contract between the banker and the
payee, who cannot, therefore, sue the bank on dishonour.
3. A cheque is supposed to be drawn upon funds in the hands of the banker.

15
Corpus Juris Secundum, Volume 10, at pp. 118
16
Section 6, Negotiable Instruments Act, 1882
17
Revised by Justice Ranganath Mishra, Bhashyam & Adiga’s: The Negotiable Instruments Act, Bharat Law
House, New Delhi, at pp. 117
18
Ram Sarup v. Hardeo AIR 1928 All 68
19
Anil Kumar Sawhney v. Gulshan Rai (1993) 4 SCC 424

7
 4. The drawer of a cheque is not discharged by failure of the holder to present it in due
time unless the drawer has sustained damage by delay20.
5. A cheque is not noted or protested for dishonour and is generally inland.

6. In respect of crossed cheques, there is protection given to the baker which is peculiar
to these instruments21.

Dishonour of Cheque

Section 6 of the Negotiable Instruments Act, 1881 defines a cheque as

a bill of exchange drawn on a specified banker and not expressed to be payable otherwise
than on demand
Black’s law Dictionary22 defines the term “dishonour” as

“ to refuse to accept or pay a draft or to pay a promissory note when duly presented. An
instrument is dishonoured when a necessary or optional presentment is duly made and due
acceptance or payment is refused, or cannot be obtained within the prescribed time, or in case
of bank collections, the instrument is reasonable returned by the midnight deadline”

Reference to the term ‘dishonour’ has been made in section 91 and section 92 of the
Negotiable Instrument Act, 1881

Section 91- Dishonour by non-acceptance

“a bill of exchange is said to be dishonoured by non-acceptance when the drawee, or one of

several drawees not being partners, makes default in acceptance upon being duly required to
accept the bill, or where presentment is excused and the bill is not accepted.

Where the drawee is incompetent to contract, or the acceptance is' qualified, the bill may be
treated -as dishonoured”

Section 92- Dishonour by non-payment

“A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment

when the maker of the note, acceptor of the bill or drawee of the cheque makes default in
payment upon being duly required to pay the same.”

20
Section 84, Negotiable Instruments Act, 1881
21
Section 123-131A, Negotiable Instruments Act, 1882.
22
Rakesh Porwal v. Narayan Joglekar, 1993 CrLJ 680 (Bom)

8
Thus if on presentation the banker does not pay, the dishonour takes place and the holder
acquires at once the right of recourse against the drawer and the other parties on the cheque.
Dishonour of cheque has been considered as a criminal offence u/s 138 of the Negotiable
Instrument Act, 1881. According to section 138 whenever any cheque for the discharge of
any legally enforceable debt or other liability is dishonoured by the bank for want of funds
and the payment is not made by the drawer despite a legal notice of demand, it shall be
deemed to be criminal offence. Section 138 of Negotiable Instrument act is read as:

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
honour 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 provision 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.

Object of Section 138 is to make drawer of the cheque subject to penalty when the cheque
bounces on the ground of insufficient funds. Hon’ble apex court in the case of P.J. Agro tech
ltd. v. Water Base Ltd23. has held that “…it is very clear that in order to attract the provision
thereof a cheque which is dishonoured will have to be drawn by a person on an account

23
(2010) 12 SCC 146

9
maintained by him with the 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. It
is only such a cheque which is dishonoured which would attract the provision of section 138
of the above act against the drawer of the cheque”.

Also in the case of Mainuddin Abdul Sattar v. Vijay D. Salvi24 Hon’ble Supreme Court
supported the abovementioned view and levy a fine of double the cheque (which was
bounced) amount with simple interest of 9% p.a. with 5 months’ simple imprisonment. The
plain reading of section 138 of the said act makes it clear that the words, “either because of
the amount of money standing to the credit of that account is insufficient to honour the
cheque or that it exceeds the amount arranged to be paid from that account…” have been
specifically used. It would, therefore, mean that only two contingencies are contemplated and
as such, the word “either-or” have been used. It is therefore, clear that the cheque should be
dishonoured either for the insufficiency of the amount or, because it exceeds the amount
arranged to be paid from that account. No third contingency or eventuality has been
contemplated and the specific clear wording of section 138 eliminated any third contingency
than mentioned in the section itself. The cheque can be dishonoured for many other reasons.
In the case of Om Prakash Maniyar v. Swati Bhide25 the submission on behalf of petitioners
to the effect that the dishonour because of the closure of the account should be held as penal,
was not accepted by the court.

For committing an offence under section 138 of the act “mens real” is not an essential
ingredient26. The said provision exclude mens rea by creating strict liability and this is
explicit from the words ‘ such person deemed to have committed an offence.

Ingredient of Penal Provisions

Section 138 create an offence for which the mental elements are not necessary. It is not
enough if a cheque is dequn by the accused 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 discharge
in whole or in part, of any debt or other liability due. Therefore, whenever the cheques are on
account of insufficiency of funds or reasons referable to the drawer’s liability to provide
funds, the provision of section 138 of the act would be attracted, provided the following
condition are satisfied.

24
(2015) 9 SCC 622
25
1992 Mah LJ 302
26
Mahendra A Dadia v. State of Maharashtra (2000) (1) Civil Court cases 438 (Bom)

10
1. Cheque Drawn on a bank account

Section 138 requires that a cheque, to be caught by the section, should be drawn by a person
on an account maintained by him with the banker for payment of any amount of money’.
Existence of a “live account” at the time of issue of cheque is a condition precedent for
attracting penal liability for the offence under this section. The cheque is returned by the bank
unpaid either because of the insufficiency of the amount or, because it exceeds the amount
arranged to be paid from the account. The word ‘that account’ in the section denote to the
account in respect of which the cheque was drawn. No doubt if any person manages to issue a
cheque without an account with the banker concerned its consequences would not snowball
into the offences described under section 138 of the act. For the offence under section 138 of
the act there must have been an account maintained by the drawer at the time of the cheque
was drawn.

2. Issue of Cheque in discharge of a debt or liability

The cheque unpaid by the bank must have been issued in discharge of a debt or other  liability
wholly or in part. Where a cheque is issued not for the purposes of discharge of any debt or
other liability, the maker of the cheque is not liable for prosecution under section 138 of the
Act. A cheque given as a gift or for any other reasons and not for the satisfaction of any debt
or other liability, partly or wholly, even if it is returned unpaid will not meet the penal
consequences. If the above conditions are fulfilled, irrespective of the mental conditions of
the drawer he shall be deemed to have committed an offence, provided the other four
requisites are fulfilled:

a) Presentation of the cheque within six months or within the period of its validity

The cheque must have been presented to the bank within a period of six months from the date
on which it is drawn or its period of validity, whichever is earlier. Thus, if a cheque is valid
for three months and is presented to the bank within a period of six months the provisions of
this section shall not be attracted. However, if the period of validity of the cheque is not
specified or prescribed the cheque is presented within six months from the date the cause of
action can arise. The six months are taken from the date the cheque was drawn.

b) Return of the cheque unpaid for reason of insufficiency of funds

11
The cheque must be returned either because the money standing to the credit of that account
is insufficient to honour the cheque or that it exceeds the arrangement made to be paid from
that account by an agreement with the bank.

c) Issue of the notice of dishonour demanding payment within thirty days of receipt of
information as to dishonour of the cheque.

The payee or the holder in due course of the cheque has to give a notice in writing making a
demand for payment of the said amount of money to the drawer of the cheque. Such notice
must be given within 30 days of information from the bank regarding the return of cheque as
unpaid.

d) Failure of the drawer to make the payment within fifteen days of the receipt of the
payment

After the receipt of the above notice the drawer of the cheque has to make payment of said
amount of money to the payee or to the holder in due course of the cheque within 15days of
the receipt of the notice. If the payment is not made after the receipt of the notice within
stipulated time, a cause of action for initiating criminal proceedings under this section will
arise.

Offences Under IPC

Cheating

Cheating being an offence is defined under Section 415 of the Indian Penal Code as follows:

"Whoever, by deceiving any person, fraudulently or dishonestly induces the person so

deceived to deliver any property to any person, or to consent that any person shall retain any
property, or intentionally induces the person so deceived to do or omit to do anything which
he would not do omit if he were not so deceived, and which act or omission causes or is
likely to cause damage or harm to that person in body, mind, reputation or property, is said to
"cheat".

Explanation. A dishonest concealment of facts is deception within the meaning of this

section. “In order to bring the case within the definition of Cheating under section 415 of the
IPC, it has to be shown by the prosecution that there was some inducement on the part of the
accused persons and the said inducement was made fraudulently or dishonestly with a view to

12
deceive the complainant. It is further to be shown by the prosecution that due to deception
practiced by the accused persons, the person so deceived had delivered the property to the
accused persons or had given consent that the accused person shall retain that property. To
hold a person guilty of the offence of cheating it has to be shown that his intention was
dishonest at the time of making the promise. Whenever a cheque issued with dishonest
intentions is dishonoured, the drawer of the cheque can be proceeded against under sections
417 & 420 of the IPC by the payee or holder in due course of the cheque. In Keshavji
Madhavji v. Emperor27 it was observed that ‘it was for the prosecution to establish facts
which point prima facie to the conclusion that the failure to meet the cheque was not
accidental but a consequence expected and therefore, intended by the accused. It will then be
for the accused to establish any facts that may be  in his favour which are specially within his
knowledge and as to which the prosecution could not be expected to have any information’.
A mere allegation that a cheque issued by the accused to the complainant had been
dishonoured is not sufficient to establish the offence of cheating under section 415 of the IPC.
In Baijnath Sahay v. Emperor28 it was observed that the act of drawing a cheque implied at
least three elements: (a) that the drawer has an account with the bank in question; (b) that he
has authority to draw on it for the amount shown on the cheque;(c) that the cheque as drawn,
is valid order for the payment of the amount, or that the present state of affairs is such that in
the ordinary course of events, the cheque will on future presentment be dishonoured.
Supreme Court in the case of Laxmi Dyechem v. State of Gujrat29 also held that “… all those
who are well aware that they have no amount in the bank and yer issue and cheque in
discharge of debt or liablity which amount to cheating”. Similarly in the case of Rajendra
Vasantrao Khode v. Laxmikant Shantilal Choudhari30 Bombay HC held that plea that the
conduct of accused might amount to breach of conduct making him liable for damages but
did not attract criminal offence under s. 420 IPC not acceptable. Drawing of a cheque does
not imply a representation that the drawer already had the money in the bank to the amount
shown on the cheque, for he may either have authority to overdraw, or have an honest
intention of paying in the necessary money for before cheque can be presented. Thus mere
dishonour for lack of funds does not amount to cheating; for cheating to be established a
mental element to deceive is necessary.

Section 416 of IPC defines cheating by personation as follows:

27
AIR 1930 Bom 179
28
AIR 1933 Pat 183
29
(2012) 13 SCC 375
30
(2000) 4 ICC 204 (Bom)

13
“A person is said to cheat by personation if he cheats by pretending to be some
other   person, or by knowingly substituting one person for another, or representing that he
or any other person is  a person other than he or such other person  really is.

Explanation. -The offence is committed whether the individual personated is a real

or imaginary person”

"The personation referred to in this section may be either by words or by conduct. The
offence under section 416 of IPC owes its gravity to the fact that it affects not only the person
deceived but also the person personated Offence of cheating by personation is punishable
under section 419 of IPC whereas general cheating is punishable under section 417 and
section 417 of IPC.

Forgery
Section 463 of IPC defines forgery as:
Whoever makes any false document or part of a document with intent to cause damage or
injury, to the public or to any person, or to support any claim or title, or to cause any person
to part with property, or to enter into any express or implied contract, or with intent to
commit fraud or that fraud may be committed, commits forgery.
Section 464 of IPC deals with making a false document and provides as under:

A person is said to make a false document-

First.-Who dishonestly or fraudulently makes, signs, seals or executes a document or part of

a document, or makes any mark denoting the execution of a document, with the intention of
causing it to be believed that such document or part of a document was made, signed, sealed
or executed by or by the authority of a person by whom or by whose authority he knows that
it was not made, signed, sealed or executed, or at a time at which he knows that it was not
made, signed, sealed or executed; or

Secondly. -Who, without lawful authority, dishonestly or fraudulently, by cancellation or

otherwise, alters a document in any material part thereof, after it has been made or executed
either by himself or by any other person, whether such person be living or dead at the time of
such alteration; or

Thirdly. -Who dishonestly or fraudulently causes any person to sign, seal, execute or alter a
document, knowing that such person by reason of unsoundness of mind or intoxication

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cannot, or that by reason of deception practised upon him, he does not know the contents of
the document or the nature of the alteration.

Explanation I.-A man's signature of his own name may amount to forgery.

Explanation 1 – The making of a false document in the name of a fictitious person, intending
it to be believed that he document was made by a real person, or in the name of a deceased
person, intending it to be believed that the document was made by the person in his lifetime,
may amount to forgery

Punishment for Forgery

Whoever commits forgery shall be punished with the imprisonment of either for a term which
may extend to two years or with fie or with both.

Banker’s liability for payment made on forged cheques

Relationship between a banker and his customer is that of a debtor and creditor. When
cheque with a forged signature is presented, the banker has no authority to make payments on
it, and if he does make such payment he would be acting contrary to the law and would be
liable to the customer for the said amount. A bank in such cases can escape liability only if it
can show that the customer is not entitled to make a claim on account of adoption, estoppel or
ratification. The rule of law in this regard can be stated as follows: When a cheque duly
signed by a customer is presented before a bank with whom he has an account there is a
mandate on the bank to pay the amount covered by the cheque. However, if the signature
on the cheque is not genuine, there is no mandate on the bank to pay. The bank when makes
payment on such a cheque, cannot resist the claims of the customer with the defence of
negligence on its part, such as leaving the cheque book carelessly so that the third parties
could easily get hold of it. This is because a document in cheque form, on which the
customer’s name as drawer is forged, is a mere nullity. The bank can succeed only when it
establishes adoption or estoppel.

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Conclusion
The law relating to Negotiable instruments is the law of the commercial world which was
enacted to facilitate the activities in trade and commerce, making provision of giving sanctity
to the instrument of credit which would be deemed convertible into money and easily
passable from one person to another. The main object of the Act is to legalise the system by
which instruments contemplated by it could pass from hand to hand by negotiation like any
other goods.

Chapter XVII was inserted in the Act 1988 with a view to promote the efficacy of banking
operations and to ensure credibility in transacting business through cheques. However, the
chapter is not comprehensive and lacks to cover the various aspects of the commercial
transactions especially in view of the emerging ways of payment through the Internet and
other electronic means. Section 138 also does not specifically cover the aspects such as where
the payment has been stopped by the drawer or where the account has been closed prior to the
endorsement of the cheque. These provisions no doubt have served their purpose but they
could be more elaborate in solving the dispute rather than merely relying on the Court
judgments.

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 BIBLIOGRAPHY

Primary Sources

Cases

Anil Kumar Sawhney v. Gulshan Rai

Baijnath Sahay v. Emperor
Keshavji Madhavji v. Emperor
Laxmi Dyechem v. State of Gujrat
Mahendra A Dadia v. State of Maharashtra
Mainuddin Abdul Sattar v. Vijay D. Salvi
Om Prakash Maniyar v. Swati Bhide
P.J. Agro tech ltd. v. Water Base Ltd
Rakesh Porwal v. Narayan Joglekar
Ram Sarup v. Hardeo
Vasantrao Khode v. Laxmikant Shantilal Choudhari

Legislation

1860- Indian Penal Code

1881- Negotiable Instrument Act
1882- Bills of Exchange Act
1985- Bills of Exchange Act of Canada

Secondary Cases

Articles

 Stephen Quinns & William Roberds, The Evolution of the Check as a Means of
Payment: A Historical Survey, Economic Review, Federal Reserve Bank of Atlanta,
Number 4, 2008

 Corpus Juris Secundum, Volume 10, at pp. 118

v
  Anjana Dave & Dr. R V Mehta, An analytical study of the provision relating to
dishonour of cheques under chapter XVII of the Negotiable Instrument Act, 1881,
Pacific Business Review International, Volume 7 Issue 5, November 2014

 Workshop summary on Recent Trend in Section 138 of the Negotiable Instruments

Act

Web Sources
 Khusboo Agarwal, Dishonour of Cheques: Director’s Liability in case of dishonour of
cheque available at https://www.lawctopus.com/academike/dishonour-of-cheques/
 https://www.scribd.com/doc/26670233/Liability-for-Dishonor-of-Cheques-Project
 http://www.infosys.com/finacle/solutions/thought-papers/Documents/Evolution-of-
cheques-and-paper-based-clearing-in-India.pdf
 http://www.rbi.org.in/scripts/PublicationsView.aspx?id=155

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