Cheque as A Negotiable Instrument


Author: T. Bhavadharani, Government Law College, Madurai affiliated by Tamilnadu  Dr. Ambedkar Law University.


             Today, in this commercial world technologies are developed broadly.  The transactions in business are heavy for which we need safer and evidential proof.  It is a common practice for businessmen to make use of certain documents as means of making payment.  All these transactions require flow of cash either immediately or after a certain time.  So far as concerned, Negotiable Instrument Act, 1881 was enacted and enforced.  It is constitutionally valid and Entry 46 of Union List of the Indian Constitution includes Bill of Exchange, Cheques, Promissory Notes and other like Instruments.  Here in this Article, we have Cheque as a Negotiable Instrument in detailed study as Legal Provision.


              Negotiable Instrument is a written document which creates right in favour of person and is freely transferable by delivery.  One who obtains Negotiable Instrument, has a title upon it.  It creates Promise to pay the bearer/Holder the sum of money when demanded or at any time in the future.


              According to Section – 6 of Negotiable Instrument Act, 1881,  A cheque is defined as 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 truncated cheque and a cheque in the electronic form.  The two major forms of Digital signatures[1] and Electronic Transfers are recognised by the Information Technology Act, 2000.  A Cheque is an exception  to the general rule that a bill of exchange cannot be drawn payable to bearer on demand – Sec.31 of Reserve Bank of India Act, i.e., payable only on demand.

Essentials of Cheque:

  • The Cheque is Payable on demand
  • Drawn on a Specified Banker
  • The Cheque does not require any acceptance
  • The Cheque is not entitled to days of grace
  • Cheque can be crossed

Forms of Cheque:

  • Truncated Cheque
  • A cheque in electronic form

              A truncated cheque means a cheque which is truncated during the course of a clearing cycle, either by the clearing house or bank whether paying or recovering payment immediately on generation of an electronic image for transmission, substituting the further physical movement of cheque in writing.  A physical cheque deposited at Bank, scanned electronically for processing.

              A cheque in electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system.  This is Online payment instructions in net banking.


  1. Drawer:  The Customer who draws the Cheque on his Account.
  2. Drawee:  The Banker on whom the cheque is presented.
  3. Payee:    The Person on whose name is mentioned and the beneficiary of the payment.  Drawer  and Payee can be the same individual.

Apart from the three parties, others involved in payment and collection of cheques:

  • Endorser:  The Person who transfers his right to another person.
  • Endorsee:  The Person on whom the right is transferred.


  1. Bearer Cheque:

            This cheque can be transferred by mere delivery and needs no endorsement.  A cheque which is payable to any person who holds and presents to Bank is called a Bearer Cheque.  It is also known as uncrossed or open cheque.

2. Account Payee Cheque:

             The bearer cheque becomes Account payee cheque by writing “Account Payee” or crossing it twice with two parallel lines on the left hand side top corner and the amount will be transferred to the person’s account specified on the cheque.  It is also known as crossed cheque.

3. Open Cheque:

             A cheque is classified as ‘Open’ when encashment is allowed across the counter of the bank.

4. Order Cheque:

             An order cheque is a cheque which is payable to a particular person. The payee can transfer an order cheque by endorsement to another person by signing his name on the back of the cheque[2].

5. Post dated Cheque:

            This cheque is issued to meet the future obligations.  It can be crossed or account payee cheque which is post dated and it is only valid for three months from the date of cheque mentioned.

6. Stale  Cheque:

             The Cheque is called Stale when it becomes expired or completed maturity period.


          A Cheque bearing some material instructions is called crossed cheque.  It should be honoured through a Banker and not through the counter.  The main object of crossing is the cheque must be ensured with due diligence and proper payment should be made to payee.  Crossing gives protection against payment of a cheque to wrong parties.  Section 123 to 131 of the Negotiable Instruments Act enumerates provisions relating to crossing of Cheque.

Cheque crossed generally:    (Section 123)

 As per Section 123 of NI Act, Where a cheque bears across its face an addition of the words “and company” between two parallel transverse lines, or of two parallel transverse lines simply, either with or without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed generally. 

Cheque crossed specially:  (Section 124)

               Where a cheque bears across its face an addition of the name of a banker,  either with or without the words “not negotiable”, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker.

Payment of cheque crossed generally or specially: (Section 126)

                  Where a cheque is crossed generally, the banker on whom it is drawn shall not pay it otherwise than to a banker.  Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it otherwise than to the banker to whom it is crossed, or his agent for collection.

Cheque bearing “not negotiable” (Section 130)

                 According to Section 130 of NI Act, A person taking a cheque crossed generally or specially, bearing in either case the words “not negotiable”, shall not have, and shall not be capable of giving, a better title to the cheque than that which the person form whom he took it had. Thus, mere writing words ‘Not negotiable’ does not mean that the cheque is not transferable. It is still transferable, but the transferee cannot get title better than what transferor had.

Double Crossing:

                 A cheque bearing a special crossing is to be collected through the banker specified therein. It cannot be crossed specially again to another banker, i.e., cheque cannot have two special crossings, as the very purpose of the first special crossing is frustrated by the second one. However, there is one exception to this rule for a specific purpose. If a banker, to whom the cheque is originally specially crossed submits it to another banker for collection as its agent, in such a case the latter crossing must specify that it is acting as agent for the first banker to whom the cheque is specially crossed.


                  A person, on receipt of the Cheque, has to present it with a banker for encashment which is otherwise called as “Presenting the Cheque for Collection”. The Cheque should be presented for collection before it becomes a Stale Cheque. If that Cheque should be payable at a specified place then it should be presented in that place only and not elsewhere[3]. The Cheque should be presented during the usual hours of banking.[4]

                 The bank with which the Cheque is presented for collection is called as “Collection Bank” which should be treated as an agent of the person who presents it for collection. Sometimes, the Drawee Bank and the Collection Bank may be one and the same. In case, the Drawee Bank and the Collection Bank are not one and the same, the Collection Bank must submit the Cheque to the Drawee Bank before that Cheque becomes a Stale Cheque. The Drawee Bank is termed as Paying Bank.


                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.[5]


               Besides civil law, an important development both, in internal and external trade is the growth of crimes and we find that banking transactions and banking business is every day being confronted with criminal actions and this has led to an increase in the number of criminal cases relating to or concerned with the Banking transactions. Whenever a cheque is dishonoured, the legal machinery relating to the dishonour of a cheque comes into motion.

DISHONOUR OF CHEQUE-CRIMINAL LIABILITY:    (Section 138)                                                                                                                          

                 A person issuing a cheque will be punishable with imprisonment for a term up to 2 years or with fine twice the amount of cheque or both, if the cheque is dishonoured due to insufficiency of funds.


a)  Cheque should have been in discharge of liability, i.e., it does not include gift cheques.

b)  Cheque should be presented within period of validity  or 3 months whichever is earlier.

c)  Cheque should have been deposited and in ma on of dishonour received stating insufficiency of funds as reason for dishonour.

d)  The holder or payee in due course should give notice demanding payment within 30 days of his receiving notice of intimation of dishonour.

e)  If the drawer fails to make payment within 15 days of receipt of notice, then a person could proceed for prosecution on because on the expiry of 15 days, the cause of action arises.

f)  Prosecution complaint to be made only by payee / holder in due course within 1 month of cause of action.

                On sufficient cause extension  of  me can be given for filing the case under Sec 138.  In Damodhar S. Prabhu Vs. Syed Babalal H.[6] the Hon’ble Supreme Court sets out the object sought to be achieved by the provisions of section – 138 and the purpose underlying the punishment provided therein. It is held that the punishment in section–138 cases is meant more to ensure payment of money rather than to seek retribution. The threat of jail is only the mode to ensure quick recovery. This is also Landmark authority on the point of compounding of the offence.

Presumption in favour of holder (Section 139)

                   It shall be presumed, unless contrary is proved, that the holder of a cheque received the cheque for discharge, in whole or in part, of any debt or other liability. It shall not be a defence in a prosecution for that the drawer had no reason to believe that when he issued the cheque that the cheque may be dishonoured, for the reason of insufficiency of funds.[7] In T. Vasanthkumar vs  Vijayakumari[8], the scope of statutory presumptions expounded by Hon’ble Apex Court. It is held that once signed cheque is issued it is for the accused to disprove that the cheque was not issued for legally recoverable debt.

Cognizance of offences (Section 142)

a. No Court shall take cognizance of any offence punishable under Sec. 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque.  

b. Such complaint is to be made within one month of the date on which the cause of ac on arises under Sec. 138;

c. No Court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try the offence. d. offences u/s 138 are compoundable offences.

              If the Complaint under Section-138 of the Act is filed  even before the expiry of the said 15 days, then it is called “Pre-mature Complaint” and the court cannot take cognizance of the same and if the court has taken cognizance of the same, it is liable to be dismissed but the complainant is not precluded from filing a fresh complaint.  This position of law has been enunciated by the Hon’ble Supreme Court in its Judgement of  Yogendra Pradeep Singh Vs  Savithri Pandey[9].

              The Negotiable Instruments (Amendment and Miscellaneous provision) Act, 2002 has introduced Section 143 to 147 deals with the Court procedures followed in prosecution relating to dishonour of cheque.

What to do when your cheque Bounces:

               The Dishonour of Cheque only came to knowledge of Payee from the Drawee Bank due to insufficiency of Funds.  The Drawee Bank will issue the Cheque Return Memo.  The Remedies or steps to be done for the Payee are listed here:

  • Send a Written Notice to Drawer within 30 days from the date of Cheque Return Memo received.
  • The Written Notice should be stated with Drawer should make payment of cheque amount  within 15 days from the date of receipt of such notice.
  • After the expiry of such 15 days period, if the drawer fails to make payment, he falls within the ambit of criminal liability.
  • In such case, the payee (Beneficiary of  cheque) can file a complaint in the Court of Judicial Magistrate of First class or Metropolitan Magistrate.
  • The complaint should be accompanied with affidavit.  After the confirmation of documents and complaint made, the Court will issue summons to drawer to appear before the court on such particular date and the drawer also provided with sufficient opportunity for his plea.
  • After the hearing procedure, the final Judgement will be passed.
  • If the drawer is found guilty based upon the evidence, he would be convicted as per Section 138 of NI Act, 1881.


              In this technological and fast moving world, the cheque is the familiar phenomenon in business as well as individual connotations.  The Legal provisions of the Cheque should be strictly adhered on account of cause of action arises. From the detailed analysis, the cheque should be presented within a stipulated time, it should be noted for payment through Bank or counter, the cheque should be payable on demand etc.  Chapter XIV and XVII of Negotiable Instrument Act completely deals with Cheque.  The Liability of the Banker in payment of cheque must be done with eye to eye view on signature, name and crossing etc.   

[1] Section 2(1)(p)  of Information Technology Act, 2000

Digital Signature means the authentication of any electronic record by a person who has subscribed for the digital signature in accordance to the procedure mentioned under Section 3 of this Act.


[3] Section 68 of NI Act

[4] Section 65 of NI Act

[5] Section 92 of Negotiable Instrument Act,1881

[6] (2010) 5 SCC – 663

[7] Section 140 of NI Act

[8] 2016(2) Mh.L.J. 335

[9] AIR 2015 SC 157: CDJ 2014 SC 802