Dishonour of cheques in Indian Law.


Author: Ms. Kritika Goyal, Amity Law School, Delhi.

Dishonour of cheque is a criminal offence in India and is punishable by law with imprisonment up to two years or with the monetary penalty or with both.
A cheque contains a mandate of the drawer to pay some specific amount of money to the bearer or the person whose name is mentioned therein.

When a cheque is dishonoured, the drawee bank issued a ‘cheque return memo’ to the banker of the payee wherein he mentions the reasons for non-payment.

The payee can legally sue the drawer for dishonour of cheque only if the amount so mentioned in the cheque is due for the discharge of any liability or debt.
Hence if the cheque was issued as a gift deed or for some unlawful purposes, then the drawer can’t be accused of the same.

Dishonour of cheque is of 2 kinds: –

1. Dishonour of bill of exchange by non-acceptance
2.Dishonour of promissory note, cheque by non-payment or bill of exchange.

There is dishonour of instrument when the maker, acceptor or the drawee makes any default in making the payment. Thus when this maker, acceptor or drawee purposely prevents the presentment of instrument is considered to be dishonoured even without the presentment.

Notice of dishonour

Communication of dishonour is done stating about the fact that the cheque has been dishonoured.  Notice of dishonoured cheque is given to the issuer of the cheque who is actually liable and therefore is served with the warning about how he could be made liable.

Notice by whom?

The notice of dishonour is to be given by a person who is aggrieved by such act or by a person who wants to make some party of his liable on the instrument. Hence, the notice can be served by :

1. By the holder (the aggrieved party himself)
2.A party to the instrument who remains liable for it.

Dishonour of cheque

If a cheque is dishonoured due to the insufficiency of funds or mismatch of signatures or any other as may be, the aggrieved party suffers a lot. To discourage this act, dishonour of cheque has been made a criminal offence under Negotiable Instruments (Amendment) Act, 1988.

Chapter VII was inserted in the said act consisting of sections 138 to 142 which deals with offences.

Section 138 of the NI Act makes dishonour of cheque an offence in particular. The holder, in due course, may have recourse against the drawer of the cheque, who is to be held liable for the offence.

Essential for an action under section 138

1. There should be dishonour of the cheque- section 138 makes dishonour of cheque, a punishable offence, only in certain cases. So for it to fall under the same, requirements must be fulfilled.

2. Payment in the discharge of debtor liability – The cheque should have been drawn by any person on account with the banker for payment of money to another person to discharge the debt in part or in whole.

3. Presentment of the cheque within the period of its validity – One important requirement is that the cheque should be presented before it becomes stale and invalid. Cheque should be presented within a period of 6 months from the date of issuing.

4. Dishonour due to insufficient fund –
one requirement is that the cheque should be returned by the bank unpaid.

Dishonour mainly is because of 2 reasons-

1. Either the amount is insufficient
2. The signatures on the cheque do not match to the original ones.


A bounced cheque is one where the account holder does not have sufficient amount and hence the required transaction cannot be carried out. A survey was conducted by Supreme Court which claims that over 40 lakh cases of cheque bounce are pending in our country. Lack of knowledge is the basic reason that has brought the majority of people in this situation. There can be various legal remedies available to a person. Listed below are some of them-


Whenever a cheque bounces, the bank on first-hand issues a ‘cheque return memo’ which states the reasons for non- payment. The holder has an option of resubmitting the cheque to the bank within three months of the date on it provided that he believes that it will be honoured the second time.

An alternative to the same is to prosecute the defaulter legally. Section 138 of Negotiable Instruments Act provides penalties in case a cheque gets dishonoured for insufficiency of funds. When the cash is withdrawn by the person, the cheque may bounce because of mainly two reasons:
1. Insufficiency of funds
2. The cheque amount exceeds the agreed amount to be paid to the person from that account.

In both the above-mentioned incidents, the person drawing the cheque is taken to be the committer of the offence and is therefore liable to be punished through the act (138 of NIA) by imprisonment that can extend up to two years. Also, the person whose cheque gets dishonoured becomes liable to pay the fine which can be up to twice the amount of cheque.


A legal notice is to be sent to the defaulter within 30 days of receiving the cheque return memo. It should contain the following info:

1. Relevant facts and circumstances of the case,
2. The nature of the transaction,
4.Date of depositing the instrument in the bank,
5. Subsequent date of dishonouring should be clearly mentioned in the notice.

Now, if the debtor fails to make a fresh payment within 30 days of receiving the notice, the payee has complete right to file a criminal complaint under section 138 of Negotiable Instruments Act. The complaint should, however, be registered in a magistrate’s court within a month of the expiry of the notice period.

If the bearer fails to file a complaint within this period, his suit will exceed the time limit, and hence, will not be entertained by the court unless it is shown some sufficient and reasonable cause for the delay. After receiving the complaint, along with an affidavit and relevant paper trial, the court will issue summons and hear start with the proceedings.
The defaulter can approach to appeal to the sessions court within one month from the date of judgment from the lower court. Also, if accepted by both parties, there can be midway to this issue by having an attempt for out-of-court settlement at any point of time.  A case can also be filed under section 420 of IPC  but the other way is always preferred as it is quick.


While the criminal process is helpful in taking a defaulter to the task, it may not always result in the discovery of the dues and hence an alternative solution for the same can be to file a civil suit for recovery of the cheque amount along with the exact same amount and lost interest.


All the legal remedies are available only where pending liability can be clearly established. Hence, if a cheque was issued for the purpose of donation or gift, the holder cannot be held legally liable for the same.


The 2002 amendment and insertion of penal provisions have given relied on the drawee. This has also helped in curtailing the dishonest and fraudulent intentions of the issuer. This can be termed as one remarkable step in the banking sector.