All about Dishonour of Cheques

The Authors, Arjav Khurkhuriya and Divya Tirkey, are currently interning with LatestLaws.com. Arjav Khurkhuriya is a 2nd year BA LLB
Student at Dr. B.R. Ambedkar National Law University, Sonipat. Divya Tirkey is a 3rd year BA LLB student at Rajiv Gandhi National University
of Law, Patiala.

Meaning of the Cheque

A cheque is a negotiable instrument and bill of exchange which acts as a written instruction
to the bank to pay a certain amount of money from the drawer’s bank account to the payee
to whom the cheque is issued. It is an unconditional and definite order to the bank, payable
on demand and it can be transferred by mere hand delivery. As per the Section 6 of the
Negotiable Instruments Act 1881, “A cheque is a bill of exchange drawn on specific banker
and not expressed to be payable otherwise than on demand and it includes electronic image
of truncated cheque and a cheque in electronic from.”[i] Truncated cheque is a cheque
which is converted into an electronic image by bank or clearing house for the purpose of
easier transmission substituting physical cheque. An electronic cheque is a cheque that is
drawn in electronic form Making payment through cheque is safe and convenient. However,
cheques are not legal tender and a person can refuse to accept them.  

Following are the parties to a cheque[ii] -

Drawer- Drawer is the person who draws the cheque and promises to pay a certain
amount to another person. Drawer signs the cheque and orders the bank to pay the
amount to another person
Drawee- Drawee is the bank on which a cheque is drawn by the drawer. The Drawee is
directed by the drawer to pay the amount mentioned in the cheque.
Payee- Payee is the beneficiary receiving payment.
Endorser- Endorser is the party who transfers their right to receive payment to some
other party.
Endorsee- Endorsee is the party in the favour of whom the right to receive payment is
transferred by the endorser.

Components of Cheque[iii]

Date of cheque issue- In the date column, the date on which the drawer wants
money to be debited or transferred is mentioned.

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Name of Payee- In this section the name of the payee, the person to whom the drawer
is making a payment is mentioned. A payee can be both an individual person or
organization. It is advisable that while writing the name of Payee one should write the
full name of the payee, and draw a running line to prevent misuse of the cheque.
The Option of ‘Or Bearer’- The option of ‘Or Bearer’ in the Cheque means that apart
from the payee whose name is written on the cheque, the bearer of the cheque can
encash it. It means that cheque is payable to any person who presents it for payment in
the bank. If the drawer did not want to avail the option of ‘Or Bearer’, the words ‘Or
Bearer’ are cancelled and the words ‘A/C Payee’ in double-cross line is added at the top
left corner of the cheque.
Sum of Money- The amount of money is written in numbers in a rectangular box next
to ‘Rs.’ Or ‘₹’ symbol present on the cheque. After writing the amount in the numerical
format it is necessary to add ‘/-’ symbol.
Amount in numbers- In this section, the amount is mentioned in words. It is always
advisable to write the words ‘ONLY’ and draw a running line after writing the amount to
prevent alteration in the amount.
Pre-printed account number- The account number of a drawer is printed in a cheque
next to ‘A/c No.’ symbol. It is a unique number given to each bank account. In India, it
usually ranges from 9 digits to 18 digits.
Signature of Drawer- The drawer signs the cheque in the space provided above the
words ‘Authorized Signatory’ or ‘Name of the Account Holder’. The drawer must use
his/her bank authorized signature only.
Pre-printed cheque number- The cheque number is a unique 6-digit number present
at the bottom left-hand side of the cheque. It is used for identifying and checking the
status of the cheque.
MICR Code- MICR Code stands for Magnetic Ink Character Recognition Code. It is a 9-
digit code present at the bottom of the cheque next to the cheque number. It is used
for the identification of the Bank and Branch from where the cheque is issued in the
cheque clearing process. It includes City Code, Bank Code, and Branch Code.

Uses of a Cheque

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A cheque is used as a mode of payment as an alternative to cash. It is used for making bill
payments, transfer of money between two entities or persons. It a enables monetary
transaction between two parties without any physical exchange of currency. Cheques are
considered a safer and more convenient way of money transfer when a large sum of money
is to be transferred. Cheques can also be used by the drawer to withdraw money from
his/her own account.[iv] Cheques are also used as a bill of exchange. Cheques can also be
issued as collateral security.

Is cheque money?

Since a cheque is a negotiable instrument, it is considered fiduciary money, fiduciary money

refers to the money backed by the mutual trust between the payer and the payee. Cheques
are not considered as legal tender money in India which means it is not a compulsion to
anyone to accept cheques as a mode to settle transaction. Cheques are just instructions to
the bank to transfer a certain sum of money from the drawer’s account to the beneficiary
subject to sufficient balance in the drawer’s bank account. According to RBI, cheques is not
cash as it does not assure finality of payment.[v]

How does a cheque work?

In the cheque clearing process, a cheque is first deposited by the payee in the bank, then
this cheque is sent to the branch of the bank where they are drawn through clearing house.
The clearing house is responsible for the net settlement of funds between the presenting
bank and drawee bank and the debit or credit position of the banks is determined. After
receiving the cheque, Drawee bank checks whether the cheque is genuine or not. After
analysing its genuineness cheque is passed, subject to the availability of the funds in the
Drawer’s account. If a cheque is unpaid due to any reason, it is returned to the presenting
banking, stating the reason of return.[vi] However, this traditional cheque clearing process is
nowadays is getting replaced by Cheque Truncation System. The CTS Clearing process
eliminates the actual flow of cheques between the banks and instead electronic image of the
cheque is used for the clearing process. The new CTS technology has reduced the time and
risk involved in the cheque clearing process.[vii]

Types of Cheques[viii]

Bearer Cheque- Bearer Cheque is the cheque that can be encashed by the person to
whom the cheque is issued or by anyone who presents the cheque in the bank. Bearer
cheques are negotiable in nature and transferable by mere delivery. Bank does not
require any authorisation from the drawer in these cheques.

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Order Cheque- Order Cheque is the cheque that is payable only to the person or entity
whose name is written on the cheque. No other has the authority to encash these
cheques. In the Order cheque, the word ‘Or Bearer’ is cancelled. Authentication of the
payee is required in these cheques. The payee can transfer such cheques to a third
party by signing his/her name at the back of it.
Crossed Cheque- In crossed cheque amount can only be transferred into the account
of the payee. Any third party can submit this cheque to the bank on the behalf of the
payee. In Crossed cheque, two parallel sloping lines along with words ‘A/C Payee’ is
written in the top left corner. These cheques can be routed only through an account and
cannot be paid in cash. These are non-negotiable in nature.
Uncrossed/Open Cheque- In Open cheque amount can be payable in cash at the
bank counter or can be transferred to the account of the person whose name is written
on the cheque. These cheques can be transferred from the payee to any third party. It
can be both order or bearer cheque.
Anti-dated Cheque- Anti-dated cheque is a cheque on which a date prior to the
current date is mentioned. Such cheques can be cleared in the bank until three months
to the date mentioned in the cheque.
Post-dated Cheque- Post-dated cheque is a cheque in which a future date is
mentioned. These cheques can be submitted any time after their issuance but will
process these cheques according to the date mentioned in the cheque.
Stale Cheque- Stale cheque is a cheque that is not presented in the bank within its
validity period. In India, a cheque is valid up to three months of the date mentioned in
the cheque.
Mutilated Cheque- The mutilated cheque is a cheque that is torn, spoiled, or
damaged, banks often reject these cheques. The banks make payment against such
cheques only after getting confirmation and verification from the drawer.
Blank Cheque- In a blank cheque the amount, name of the payee, and date are not
mentioned. It only has the signature of the drawer. The maximum withdrawal limit can
be mentioned in these cheques.
Self-Cheque- Self cheque is used by the drawer to withdraw money from his/her own
account. In self cheque word ‘Self’ is written in place of the name of the payee.
Pay Yourself Cheque- Pay yourself cheques are used when the drawer wants his bank
to deduct some amount from his account. These cheques are issued at the time of
buying bank drafts, pay orders, or FDs.
Traveller’s Cheque- Traveller’s cheque is a cheque of a fixed amount issued by the
bank for making payment or to withdraw money in a foreign country. The bank charges
a fee to issue such cheques.

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Banker’s Cheque- Banker’s cheque is issued by the bank on behalf of the customer of
the bank for making the payment within the same city. It is also known as pay-order. It
is non-negotiable in nature and cannot be dishonoured.
Cancelled Cheque- Cancelled cheque acts as a proof that person holds an account
with the given bank. In cancelled cheque, two parallel lines are drawn across the
cheque and the word ‘cancelled’ is written between them. It is used in various bank
processes like withdrawal of EPF funds, the opening of another bank account, KYC
process, etc.

What is the timeline to present a cheque?

The validity of the cheque to be presented in the bank is three months to the date
mentioned in the cheque in India earlier it was six months. After the expiry of three month
period the cheque will become a stale cheque.

Dishonour of Cheque

What is bouncing of Cheque?

Bouncing of cheques is a situation in which a cheque is presented to the bank and it cannot
be processed or honoured due to several reasons. Non-sufficient fund in the drawer’s
account is the primary reason for bounced cheque. A bounced cheque is also known as
dishonoured cheque or bad cheque.

Reasons for cheque bouncing

There can be multiple reasons for cheque bouncing. Some these reasons are insufficient
funds in the account of the issuer, mismatched signature of the drawer, signing at the wrong
place in the cheque (signing on MICR Band present on the cheque), mistakes in the date of
the cheque. The difference in the amount mentioned in the words and the amount in
numbers is another reason for cheque bounce. Any type of overwriting or damage to cheque
can also be the reason of cheque bouncing.[ix]

Penalty for Bouncing of Cheque

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As per the Section 138 of the Negotiable Instrument Act, 1881, dishonour of cheque due to
insufficient fund in drawer’s account is a criminal offence. Drawer can be punished with
imprisonment for up to two years, and/or a fine up to twice the amount of cheque bounced.
[x] A civil suit can also be filed against the drawer for the recovery of cheque bounced
amount. Banks can also charge some amount as a penalty for themselves in case of
bouncing of the cheque.

What can be done in case of cheque bounce?

In case of the cheque bounce a legal complaint under the Section 138 can be filed by the
holder of the cheque against the drawer. A holder can also file a civil suit against the drawer
for the recovery of the amount simultaneously. In case of bouncing of a cheque due to some
mistake in the writing of cheque such as an error in name, date amount, holder can ask the
drawer to issue a new cheque in the favour of holder.[xi]

Legal Notice for dishonour of cheque

A legal notice under the Section 138 of the Act can be issued by the holder to the drawer
when a cheque is bounced due to insufficient funds. The holder can issue such notice within
30 days of his knowledge of dishonour of cheque. The objective of notice is to give drawer a
chance to rectify his mistake and to protect an honest drawer. The holder cannot issue a
legal notice to the drawer if the cheque is bounced due to any other reason except
insufficient funds.

Notice of Dishonour to whom

The notice of the dishonour to the drawee of the cheque is not necessary to make them
liable. Notice of dishonour must be given to all parties other than the drawee whom the
holder seeks to make liable. The holder can give notice to both his immediate transferor or
the drawer himself. Notice from indorser to drawer acts as a notice to the drawer from
holder.[xii]

Service of Notice

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As per the Section 94 of the Act, a notice of dishonour of cheque can be given to the
authorised agent of the person to whom holder seeks to make liable, his legal representative
in case he has died. Such notice of dishonour can be given in written (sent by post), oral, or
any other form (even as email communication) but it should convey expressly that the
cheque has been dishonoured and what will be the liability of the receiver. It should be given
within a reasonable time.[xiii]

What to do after sending Legal Notice?

After sending the legal notice, holder has to give 15-day time to the drawer to pay the
amount of bounced cheque, if the drawer does not make payment within the 15 days period,
the holder can initiate a legal action within 30 days of the expiry of the notice period of 15
days.

What is the Procedure of filling a complaint?

Process of cheque bounce suit[xiv]-

1. A complaint is filed to the Magistrate after the expiry of the notice period of 15 days.
2. The holder or complainant has to appear before the court to provide all the details
related to the cheque bounce. Upon the satisfaction of the Magistrate, he will issue
summon to the drawer.
3.  After summoning the drawer, he appears in the court. If the drawer denies the
allegations made by the holder the court begins the criminal trial.
4. The arguments and evidence of both parties are presented and heard by the court.
5. After hearing the both parties the court passes its judgement on the case.

Essential documents for a Cheque Bounce case

Documents required in cheque bounce case are-

Copy of the Notice given to the drawer.

Proof of service of notice (i.e. receipt of registered post).
Original dishonoured cheque.
Cheque return memo issued by the bank upon the dishonour of cheque.
Proof of the existence of legally enforceable debt on the drawer.

Limitation period in cheque dishonour cases

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Under the Negotiable Instrument Act, 1881 the limitation period to send a notice to drawer
upon dishonour of cheque is 30 days within the receipt of information of cheque dishonour
from the bank. The limitation period to make payment to the holder after receiving the
notice is 15 days and the limitation period to file a legal complaint against the drawer if the
payment is not received within the notice period is 30 days from the date of expiry of 15
days’ notice period.

Jurisdiction of Courts

As per section 142(2)(a) of the Negotiable Instrument Act, “the court within whose
branch of the bank where the payee maintains the account is situated, will have
jurisdiction to try the offence, if the cheque is delivered for collection through an
account.” [Himalaya Self Farming Group v. Goyal Feed Suppliers, SC]

Court’s Fee

No uniform provision exists across the different states of India with respect to court
fees. In the absence of such a blanket provision, they vary from one state to another,
although the amount is not abundant. The amount also depends on the value declared
in the cheque and therefore may vary accordingly even within the same state. SC held
in the case of Surinder Singh Deswal and ors. v. Virender Gandhi and anr , Justices
Ashok Bhushan and MR Shah held that the accused had to deposit 20% of the amount
for the cheque bounce. It was emphasised that section 148 of the NI Act can have
retrospective effect, meaning thereby that the court had the power to order the
defaulters to deposit an amount while the cheque bounce case is still pending.

Cognizance of Offence

Section 142 of the NI Act, 1881 provides for the cognizance of an offence covered
under section 138, that is, when the cheque, presented within a time period of 3
months from the day it is drawn, is dishonoured due to insufficient funds in discharge
of a legally enforceable liability or a debt. The punishment awarded is imprisonment up
to 2 years or fine twice the amount in the dishonoured cheque or both.

Under section 142, only a written complaint is taken cognizance of by the court. The
complaint must be filed within one month from its occurrence. Also, only a
Metropolitan Magistrate or a Judicial Magistrate of first class or a higher court can try
cases filed under section 138.

Section 142 further provides for the territorial jurisdiction. It states that the court
within whose local jurisdiction the branch of the bank, where the account of payee
(holder in due course) or drawer is maintained, is located has the power to inquire into
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and try any case under section 138.

Is it important io hire a Lawyer in Cheque Bounce cases?

Cases of cheque bounce may end with the pressing of criminal charges, and the
criminal penalties are laid out in section 138 of the NI Act. The role of a lawyer in such
a case becomes important in preventing the client from making mistakes that might
lead to significant financial and legal harm. Since the first step after the cheque has
been dishonoured, within the next 30 days, is not to file a legal complaint in the Police
Station but to send a formal notice demanding the amount be paid, hiring a lawyer is
optional is at this stage. However, to ensure the legal language is correct and effective
in communicating the intent of the drawee, hiring a lawyer to draft it is often advised.
The time period mentioned in the notice should be for 15 days, within which if the
amount is not paid, the next stage of taking legal action under the NI Act, 1881 comes
into picture. In the same note, to ensure that the complaint is properly filed and all the
documents of evidence, like the original cheque, cheque return memo, legal notice,
etc. supporting the fact that there exists a liability that is unpaid, are forwarded,
assistance of a lawyer experienced in such cases is deemed helpful.

Due to the possibility of attracting criminal charge against the drawer exists;
involvement of a lawyer is of critical importance in the drafting of the legal notice,
filing of the complaint and in defending before the court. Only in the last case, is the
presence of a lawyer mandatory. His/her role also extends to allow client to focus on
his business and other responsibilities by relieving him of the burden of all the
paperwork. Presence of a lawyer decreases the probability that the interests of the
accused/complainant are protected according to the law.

Whether it is a Criminal Offence?

A cheque bounce or dishonour is a criminal offence punishable with imprisonment up

to 2 years and a fine double up to twice the amount of the actual amount in the
cheque that has been dishonoured or both [section 138 of the NI Act, 1881].

Three conditions need to be satisfied for section 138 to apply-

The cheque must be dishonoured by reason of insufficient funds in the account

maintained in the bank by the defaulter when money is paid to another person
from that same account.
The cheque was issued towards the payment of any legally enforceable debt or
liability, to be paid via cheque wholly or in part.

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The cheque must be presented within a time frame of 3 months from the date it is
drawn on.

Punishment for Cheque Bouncing

The drawer or signatory of the dishonoured cheque can attract criminal penalties of a
term of imprisonment of maximum 2 years and a fine which is twice the amount of
cheque or both.

Whether Criminal and Civil Case can be filed simultaneously?

Yes, a simultaneous case of civil and criminal charges can be filed for a case of cheque
bounce. In the case of Vishnu Dutt Sharma v Daya Sapra, SC held: “There cannot be
any doubt or dispute that a creditor can maintain a civil and criminal proceeding at the
same time. Both proceedings, thus, can run parallel. The fact required to be proved to
obtain a decree in the civil suit and a judgment of conviction in the criminal
proceedings may overlap, but the standard of proof in a criminal case vis-a-vis a civil
suit, indisputably is different. Whereas in a criminal case the prosecution is bound to
prove the commission of the offence on the part of the accused beyond any
reasonable doubt; in a civil suit ‘preponderance of probability’ would serve the purpose
for obtaining a decree.”

Circumstances where Cheque Bounce is not an Offence?

In the following cases, dishonoured cheques do not amount to an offence-

Cheque is not issued without any legal liability, for example in case it is given as
an advance payment.
Cheque is given in nature of a security.
When the numeric figures in the cheque do not match the amount written in words.
Any alteration in the cheque requires the drawer’s attestation.
Cheque is mutilated.
Cheque is issued to charitable trust in the nature of a gift/donation.

Whether single complaint can be filed for multiple Cheque Bounce?

A single complaint is only allowed for up to 3 dishonoured cheques. Therefore, for

example, if there are 4 cheques that have bounced, 2 complaints will have to be filed.
In case of 7 dishonoured cheques, 3 cases will have to be filed and so on.

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What happens when accused is ready to deposit the amount?

Case proceedings can be closed by the Court if the accused promises to pay the
assessed amount (cheque amount along with interest and additional costs).

Landmark Judgements under Section 138 of NI Act

i. Bridgestone India Pvt. Ltd. v. Inderpal Singh, (2016) 2 SCC 75

The respondent (accused) had given the appellant (complainant) a cheque

drawn in Chandigarh. The complainant presented it at its bank in Indore where it
bounced after which proceedings under section 128 of the NI Act were initiated
at Indore. The respondent contended that the court of Indore did not have any
jurisdiction to try the case since the cheque was drawn in Chandigarh. The High
Court accepted the respondent’s argument, applying the Dashrath Rupsingh
Rathod case (2014) 9 SCC 129, and said that the jurisdiction was with the court
in whose jurisdiction the drawee’s bank account was maintained viz. Chandigarh.
The Supreme Court held that section 142 (2)(a) provided that in determining the
territorial jurisdiction, the place of delivery of cheque and collecting of the
amount, both were to be considered. The Supreme Court, therefore, held that
the Dashrath case would not stand in way of appellant insofar as territorial
jurisdiction for initiating proceedings in cases of cheque bounce was concerned.
After the promulgation of the Negotiable Instruments (Amendment) Second 
Ordinance, 2015, Indore court, within whose jurisdiction laid the bank which
intimated the dishonouring to the appellant, had the territorial jurisdiction to
take cognizance of the offence and start proceedings.

ii. John K. Abraham v. Simon C. Abraham, (2014) 2 SCC 236

The SC held in this case where the cheque was issued to repay the loan
advanced by the complainant, the burden of proof was on the complainant to
draw a presumption under section 119 read with section 139 of NI Act. The
complainant should have proved that he had requisite funds for the
advancement of the Rs.1,50,000/- to the accused, that the accused issued the
cheque to repay that loan, and that the accused had agreed towards such an
arrangement. However, in the present case the complainant could not prove the
date and place of the advancement and made contradictory statements in cross-
examination as to who wrote the cheque. The accused was therefore acquitted.

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iii. Kaushalya Devi Massand v. Roopkishore Khore, (2011) 4 SCC 593

Held the gravity of complaint under NI Act cannot be equated with an offence
under the provisions of the Penal Code, 1860 or other criminal offences.

iv. Vijay v. Laxman, (2013) 3 SCC 86

It was held in this case by the Supreme Court that the standard of proof
necessary to rebut the assumptions of section 118 and 139 is not as high as that
required of the prosecution. Doctrine of preponderance of probabilities applies.

v. Nishant Aggarwal v. Kailash Kumar Sharma, (2013) 10 SCC 72

The SC held that issuance of notice alone was not sufficient and that
communication of the same was mandatory. Also, only after the notice has been
served and there has been a failure of payment within the next 15 days, can the
offence under section 138 be said to be completed.

[i] Negotiable Instrument Act, 1881, § 6, No. 26, Acts of Parliament, 1881 (India).

[ii] Cheque, BUSINESS JARGONS, https://businessjargons.com/cheque.html (last visited Sep. 27, 2021).

[iii] Sushma Singh, How to write a Cheque in India? (The Right Way), MONEYMINT. (Aug. 10, 2020),
https://moneymint.com/correct-way-to-write-a-cheque-in-india/.

[iv] Julia Kagan, Check, INVESTOPEDIA. (Aug. 10, 2021), https://www.investopedia.com/terms/c/check.asp.

[v] Reserve Bank of India, Payment Instruments in India (1998), https://rbi.org.in/Scripts/PublicationsView.aspx?id=156 (last
visited Sep. 28, 2021).

[vi] Sonali, Cheque clearing process in India, ALL BANKING INFO. (Aug. 25, 2020),
https://www.allbankinginfo.com/2020/08/cheque-clearing-process.html?m=1#point1

[vii] Reserve Bank of India, Cheque Truncation System (2020), https://m.rbi.org.in/scripts/FAQView.aspx?Id=63 (last visited
Sep. 28, 2021).

[viii] Cheque, supra note 2.

[ix] Cheque Bounce, PAISABAZZAR. (Jun. 11, 2020), https://www.paisabazaar.com/banking/cheque-bounce/.

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[x] Negotiable Instrument Act, 1881, § 138, No. 26, Acts of Parliament, 1881 (India).

[xi] Consequences of Cheque Bounce Notice, CLEARTAX. (May. 27, 2021), https://cleartax.in/s/consequences-cheque-
bounce-notice

[xii] Bimal N. Patel et al., Banking Law and Negotiable Instruments Act ( Eastern Book Company 2015).

[xiii] Negotiable Instrument Act, 1881, § 94, No. 26, Acts of Parliament, 1881 (India).

[xiv] Consequences of Cheque Bounce Notice, CLEARTAX. (May. 27, 2021), https://cleartax.in/s/consequences-cheque-
bounce-notice

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