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The Negotiable Instrument Act was first developed in 1866 and became law in December 1881. Although it is originally a colonial law. The Negotiable Instrument Act is still frequently used in practice since it is one of the most convenient ways to transfer money. There was no such provision before this Statute. The primary goal of this Act is to make it easier for businesses to settle payments using negotiable instruments, while also providing free transferability and the avoidance of physically carrying large sums of money. Section -138 of the Act was included in 1988 which clarified that dishonouring of cheques creates criminal liability. On the other hand, it is a bailable offence also. Before 1988 only remedy open to the payee was to initiate a civil claim in court against the defaulter which was not favourable to the payee. The Banking, Public Financial Institutions and Negotiable Instruments Amendment Act, 1988 make some amendments to the statute related to dishonouring of cheques and defaulters punished a year in prison, a fine which can be extended by doubling the amount of the cheque or both. Furthermore, The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act of 2002 increased the maximum sentence up to 2 years.


In simple words, a Negotiable Instrument is a signed document that agrees to pay a specific person an amount of cash. It could be a cheque, a bill of exchange, or delivery notes etc. As per Section -13(1) of the Negotiable Instrument Act, 1881 it is a promissory note, bills of exchange or cheques payable either to order or to bearer.


In general, a dishonoured cheque means when a bank (drawee) refuses to give money to the payee because of the insufficiency of funds in the bank (drawer), because of the absence of a failure to do the same the payee can bring a suit against the drawer under Section 138 of the Negotiable Instrument Act, 1881.

Parties to a ‘cheque’:

  • Drawer – the person who makes a cheque
  • Drawee – the Person who will give the payment
  • Payee – the person to whom the amount of money will be given as per the name mentioned on the cheque.
  • Holder – Of the cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.


According to the Section 6 of Negotiable Instrument Act, 1881—A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and cheque in the electronic form.


 Section 138 is a punitory provision that copes with the dishonoured cheques due to insufficiency of funds or due to any other reasons. Section 138 of the Act specifies a certain set of conditions under which a case against dishonouring of cheques may be filed:-

  • For the discharge of any debt, a person is obliged to issue a cheque for payment of money to another
  • That cheque must be handed to the bank within 6 months.
  • That cheque is given unpaid by the drawer( bank) due to lack of funds.
  • Within 15 days of receiving details from the bank on the return of the cheque as unpaid, the payee claims payment of the money by sending a written notice to the drawer.
  • if the drawer failed to give payment to the payee within 15 days of the receipt of the notice.

Hence, it’s mentioned that if the drawer pays the amount within 15 days then there will be no criminal liability but he/she fails to adhere to the conditions he/she will be held liable for imprisonment which is increased up to 2 years or a fine which can be extended by doubling the amount of a cheque or both. Moreover, these offences are bailable, compoundable and non-cognizable.


The payee of the dishonoured cheque can make a complaint under Section 138 of the Negotiable instrument Act, 1881 or the holder can make a complaint as per Section 142 of the act.


After the Negotiable Instrument Amendment Act of 2015, the jurisdiction under Section -142 (2)(a)is read as:- The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction– The court where the branch of the bank where the beneficiary has an account is located will have jurisdiction over the offence if the cheque is delivered for collection on an account.



Dalmia Cement Ltd. V. M/s.Galaxy Traders & Agencies Ltd. is the landmark judgement passed by the Supreme Court. In this case, judgment was passed following Section -138 of the Negotiable Instrument Act,1881 The whole revolves around the dishonoured cheque, that a notice was issued to notify the accused regarding dishonouring of a cheque When the complainant received the notice, that time the deadline for submission of the complaint was expired. Next time also the same thing happened, the accused failed to give sufficient funds. Hence, the court stated the Section 138 of the Negotiable Instrument Act, 1881 was written to prevent violation of legal rights of the payee if he/she didn’t receive the payment whereas when the situation arises that the person can’t receive the amount, the section should function as intended to realize the Act’s goal’s result, during this case the court ruled that the respondent be subjected to the Act’s provisions.


Dishonouring of cheques is a major concern that has caused many challenges but all issues have been settled through various amendments and procedures that protect the payee’s interest from the illegal part of the drawer and clarify the jurisdiction. There was also an expansion in the punishment. Nevertheless,the legislature has recently been making efforts to decriminalise cheque fraud, it remains a quasi-criminal offence.

Author: Gaganpreet Kaur Gill (Chandigarh University, Mohali)

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