A cheque is a negotiable instrument.

Crossed and account payee cheques are not negotiable by any

person other than the payee. The cheques ought to be kept into the payee’s bank account. Legally, the
creator of the cheque is called ‘drawer’, the individual in whose support the cheque is drawn is called
‘payee’, and the bank who is coordinated to pay the sum is known as ‘drawee’. However, cases of
cheque bounce are common these days. Some of the time cheques bearing expansive sums stay unpaid
and are returned by the bank on which they are drawn.

DISHONOUR OF CHEQUE

If the bank denies to pay the sum to the payee, the cheque is said to be dishonoured. In other words,
dishonour of cheque could be a condition in which the bank denies to pay the sum of cheque to the
payee. When a cheque is dishonoured, the drawee bank quickly issues a ‘Cheque Return Memo’ to the
banker of the payee saying the reason for non-payment. “The payee’s investor at that point gives the
dishonoured cheque and the notice to the payee. The holder or payee can resubmit the cheque within
three months of the date on it, in case he accepts it’ll be honoured the second time”. Be that as it may,
on the off chance that the cheque issuer comes up short to form an instalment, at that point the payee
has the correct to indict the drawer lawfully. The payee may lawfully sue the defaulter / drawer for
disrespect of cheque as it were on the off chance that the sum said within the cheque is towards
release of an obligation or any other risk of the defaulter towards payee. If the cheque was issued as a
gift, towards loaning an advance or for illegal purposes, at that point the drawer cannot be arraigned in
such cases.

LEGAL IMPLICATIONS

● The Negotiable Instruments Act, 1881 is applicable for the cases of dishonour of cheque. This
Act has been amended many times since 1881.
● According to Section 138 of the Act, “the dishonour of cheque is a criminal offence and is
punishable by imprisonment up to two years or with monetary penalty or with both”.
● If the payee decides to proceed legally, then the drawer should be given a chance of repaying
the cheque amount immediately. Such a chance has to be given only in the form of notice in
writing.
● The payee has to send the notice to the drawer within 30 days from the date of receiving
“Cheque Return Memo” from the bank. The notice should mention that the cheque amount
has to be paid to the payee within 15 days from the date of receipt of the notice by the drawer.
If the cheque issuer fails to make a fresh payment within 30 days of receiving the notice, the
payee has the right to file a criminal complaint under Section 138 of the Negotiable
Instruments Act.
 ● However, the complaint should be registered in a magistrate’s court within a month of the
expiry of the notice period. It is essential in this case to consult an advocate who is well
versed and experienced in this area of practice to proceed further in the matter.
● On getting the complaint, beside an affidavit and relevant paper trail, the court will issue summons
and listen to the matter. In case found guilty, the defaulter can be punished with monetary penalty
which may be twice the sum of the cheque or imprisonment for a term which may be extended to
two years or both. The bank too has the correct to stop the cheque book facility and close the
account for repeat offences of bounced cheques.
● If the drawer makes payment of the cheque sum within 15 days from the date of receipt of the take
note, at that point the drawer does not commit any offence. Otherwise, the payee may continue to
record a complaint within the court of the jurisdictional magistrate within one month from the date
of expiry of 15 days endorsed within the take note.

LANDMARK CASES

Smt. Asha Baldwa v. Ram Gopal

This is one of the landmark judgments in Section 138. The petitioner had filed a petition under
Section 482, CrPC to quash the proceedings instituted against him for committing an offence
under section 138. He was alleged to have handed over the dishonoured cheque to the respondent
. She consented to such giving of the cheque. Hence, she is responsible for the consequences of
giving the cheque.

The contention of the petitioner was that in accordance with Section 141(2) of the Negotiable
Instruments Act, 1881, the allegations can be made against the Company only or its Partners or
Directors only when the offence was committed with the consent or connivance or, is attributable
to, any neglect on the part of, any director, manager, secretary or partners.

The Court held that the aim is that the person who promises to pay abides by his promise.
Section 139 provides that it shall be presumed that the holder of a cheque received the cheque of
the nature referred to in Section 138 of NI Act for the discharge, in whole or in part, of any debt
or other liability.

M.M.T.C. Ltd. and Anr. Vs Medchl Chemicals and Pharma (P) Ltd. and Anr. ( AIR 2002 SC182)

The Apex Court held that even though the cheque stands dishonoured, the drawer of the cheque is to be
held guilty as a complaint under Section 138 is maintainable. The burden of proof lies on the accused to
show that he had issued an instruction to stop the payment because of valid reasons. In other words, the
presumption as to existence of legally enforceable debt is rebuttable as per Section 139. It further held that
even a payee or the holder in due course of the cheque can file a complaint under Section 142 of NI Act
and it need not necessarily be by a Director or duly authorised officer as the defect can be cured later.
Complaint cannot be quashed.