Negotiable Instruments Act
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This article has been written by Lubhanshi Rai.


With the development of the banking sector, malpractices of intentionally causing ‘cheque’[1] bounce have become rampant, therefore need to address the same was felt. In consequence, Chapter XVII, bearing title “of Penalties In Case of Dishonor of Certain Cheques for Insufficiency of Funds in the Accounts” was added[2] to the Negotiable Instrument Act, with which the issue has become the wide subject of litigation also. Defining the parameters of Section 138 in accordance with the legislative intent has been the matter of deliberation in the court. The issue has, therefore, time and again arose that “Does the ‘dishonour of cheque’ caused due to any other reason not specified in the provision, attract penal consequences prescribed therein”. 

Section 138 – Dishonor of Cheque for Insufficiency, etc., of Funds in the Account

  1. A (Drawer) has drawn a cheque with a banker, on an account maintained by the him
  2. The said cheque has been drawn in order to make the payment to B (Payee) so as to discharge the ‘debt’ or ‘other liability, either in whole or in part
  3. B presents the said cheque with the bank which gets returned unpaid by the banker of A i.e. Bank refuses to obey the command of A to make the aforesaid payment to B, due to either of the following reasons-
  4. Balance in such account maintained by A is insufficient to pay the amount mentioned in the cheque, or
  5. The amount got to be arranged by virtue of an agreement between such bank and A, is insufficient to pay the amount mentioned in the cheque. 
  6. Such a situation caused by A shall constitute an offence.


  1. B had presented the cheque within 3 months from the date of its drawal or within its validity period whichever is earlier
  2. B within 30 days of receipt of the information of non-payment, serves a legal notice upon A to make the payment good of amount mentioned in the cheque, within 15 days.
  3. A fails to make the payment of the said amount within 15 days of the receipt of aforesaid notice.

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The issue is one which directly poses a conflict between the ‘strict interpretation’ of the provision and ‘purposive interpretation’ i.e. giving effect to the legislative intent. Although, the conflict certainly is not resed Integra, rather position is very settled in this regard that if the language employed in the provision is liable to be interpreted in a manner which would go against what was intended by the legislature at the time of enactment of the provision in question, then ‘purposive interpretation’ shall prevail over the ‘strict interpretation’. 

Let’s first proceed with the strict interpretation, i.e. to take into consideration only two aforesaid grounds in point 3 as the exhaustive list, whereto the penal provision of 138 can be attracted, that means no other third reason can be read as the ground for the purpose of dishonour u/s 138. The legal consequence of same would be such to give license to the people for employing other unfair means to cause the cheque to be dishonoured, so as to ensure that none of the aforesaid two reasons turns out to be claimed in the ‘cheque return memo’[3]. Such other reason stated in the return memo could be ‘Refer to Drawer’, ‘Account Closed’, ‘Payment Stopped by the Drawer’, ‘Amount in Words and Figure Differ’ etc., wherein even if cheque was deliberately caused to be returned unpaid, the drawer won’t be liable under the provision.  So even if initially, the de facto reason was ‘insufficient funds’ only, but the same was hidden under the veil of any third reason not laid down as a ground specifically under the provision, the penal provision won’t be attracted. 

The above-explained situation would have never been appreciated by the legislature and the strict interpretation would certainly defeat the very objective of the addition of chapter XVII to the Act. The position held by Gujrat[4], Madras[5], and Bombay High Court[6] in respect of the present issue, states that endorsement by the bank in return memo is not conclusive in itself, rather if the payee, the complainant is able to refer such endorsement ultimately to either of two specified grounds, then such third reason (endorsement) is equally liable to attract the penal provision. And how it’s to be held “ultimately referable”, is purely a question to be decided on the perusal of complete evidence adduced by the complainant. Evidence could be the records of the drawer’s bank account or an employee of the bank, etc. The purpose would be to establish that the drawer wrongfully with the dishonest intention caused the cheque to be dishonoured to avoid his liability and at the relevant time when the cheque was presented, there did not exist any sufficient amount in the bank account of the accused to honour the payment of amount mentioned in the cheque, regardless of any third reason stated in the return memo. The best illustration to explain the situation would be that the bank many times in order to save the reputation of its customer, does not endorse the actual reason of “insufficient funds” in the return memo, but endorses otherwise, however the same cannot be avoided at trial in the court of law. 

Further considering the title given to section 138, which states as “Dishonor of Cheque for Insufficiency, etc., of Funds in the Account”, wherein the word “Etc” has to have significance respecting the issue in discussion, as it was undoubtedly inculcated on purpose to make the provision inclusive of such other reasons also, which have not been laid down in the section itself. And neither, it can be said to have been possible for the legislature to lay down the exhaustive list of reasons at the time of enactment, as a human mind is very fertile, which keeps evolving the new ways to accomplish the goal, so apparently bearing the psychology, legislature in its best wisdom laid down the widely used method directly of “insufficient funds” as one of the possible reasons, in continuation of which the word “etc.” warrants the inclusive wide interpretation. 

The aforesaid interpretation of “etc”, is to be understood along with the meaning of “Dishonor” u/s 138, which has not been defined in the Act. As per the Black’s Law Dictionary, it simply means “to refuse to accept or pay a draft or to pay a promissory note when duly presented”. Therefore, the fact that the cheque was incapable of being encashed or payment could not be obtained, is itself conclusive to fetch the penal provision into the picture, so long dishonest intention of the drawer existed, and it would be therefore extraneous to trace the reason as essential condition behind such dishonour.

The purposive interpretation is further supported by the statutory mandate of serving notice on the drawer after dishonour of cheque, thereby giving the last opportunity to the drawer to make the payment good of amount mentioned in the cheque, within 15 days of receipt of the notice by the drawer. The mandate of final opportunity has been incorporated under the provision bearing in mind the bonafide mistake(s) that might arise while filling in the cheque, and consequently the same might not get encashed, and therefore it’s the duty of the drawer to prove his bonafide(s) within 15 days by making the payment, the failure of which necessarily implies that the drawer had mala fide intention since the beginning and never intended to discharge the liability in question. In such a situation it becomes imperative to presume that drawer did not have sufficient amount to honour the payment, as had the funds been really available with him and had he have the intention to discharge the liability, he would have made the payment on the last provided opportunity by rectifying his bonafide mistake(s). 


In light of the settled law of the land, legislative intent has to prevail over the contradictory language employed by the legislature. In this respect, the statement made by Lord Denning L.J. deserves the appreciation, which states-

“It would certainly save the judge’s trouble if the Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears, a judge cannot simply fold his hands and blame the draftsman”[7]

In the very recent ruling of the Supreme Court, wherein it was pleased to remand the matter back to the trial court for adjudication u/s 138, thereby setting aside ruling of Madhya Pradesh High Court, who u/s 482 of CrPC[8], had quashed the complaint made u/s 138 on one of the grounds of remark noted in the return memo. Hence as on date, the legal position is no more res Integra and the penal consequences of section 138 are liable to be attracted in every case where the cheque has been returned unpaid and drawer deliberately fails in making the payment within 15 days of receipt of the statutory notice.


[1] The Negotiable Instrument Act 1881, s 6.

[2] The Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 66 of 1988, (w.e.f. 01.04.1989), s 4.

[3] “Cheque Return Memo” is a statement made by the bank wherein it communicates the reason as to dishonor of cheque. `

[4] Dada Silk Mills And Ors. vs Indian Overseas Bank And Anr. 1994 CriLJ 2874.

[5] J. Veeraraghavan vs Lalith Kumar  1995 83 CompCas 853 Mad

[6] Rakesh Nemkumar Porwal vs Narayan Dhondu Joglekar 1994 (3) BomCR 355

[7]  Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155 (CA) (at page 164)

[8] The Code of Criminal Procedure 1973 (2 of 1974)

Click Here to read more about Dishonor of Cheque.

To know about Dos and Don’ts in a cheque bounce case Click Here 

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