Dishonoring of Cheque due to Insufficiency of Fund in the Account

Section 138 of Negotiable Instrument Act deals with the provision of Dishonoring of Cheque due to insufficiency etc, of funds in the account. It come into force from 1-4-1989 vide the Banking Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 with the objective of not only protecting the interests of the genuine drawers of the cheques with a view to give them a final opportunity to make payments in respect of dishonoured cheques, but also imposing punishments on the guilty.

Ingredients to cause offence under S.138

The offence under section 138 can be caused only with the completion of a number of following acts which are components of the said offence:

1.That the Cheque in question was drawn for the purpose of payment of money to the holder.

2.That the Cheque was returned by the bank due to insufficiency of funds in the account.

3.That the payee has given notice in writing to the drawer of the cheque demanding the payment of the cheque amount within 15 days from the receipt of the information from bank regarding the return of the cheque as unpaid.

4.That after receiving the notice from payee, the drawer fails to make the payment of the same within 15 days of the receipt of the said notice.

The Number of attempts a cheque can be dishonored:  

The section 138 is silent on the part of explaining the number of attempts a cheque can be represented for clearance after its first dishonor due to insufficiency of funds. In the case of Satishkumar s/o Premchand Jain v. Krishnagopal s/o Mohan Lal Sarda 1994 Cri LJ 887 Bombay, it was held that while there is-no restriction on the number of times a cheque may be presented until it is honoured, each dishonour creates a cause of action for the purpose of criminal action under Section 138. However, this section requires is to present the cheque for clearance in the first instance within a period of six months from the date of its issue or within its validity period, as the case may be. In the case of  M /s. Syed Rasool & Sons v. M/s. Alidas & Co. (1993) 2 Full Bench of the A.P. High Court opined that a cheque can be presented any number of times during its validity. But complaint can be filed only once.

Criminal Offence:

The offence committed under Section 138 is a non-cognizable offence (a case in which a police officer cannot arrest the accused without an arrest warrant). Also, it is a bailable offence. Usually, Mens rea is an essential component for an act to be crime. But the offence under section 138 of this Act does not require criminal intent or Mens rea for creating liability. In the case of Rajinder Steels vs. Union of India, court has held that for an offence under Section 138, mens rea is not essential and that the legislature by incorporating absolute liability or strict liability under Section 138 has tried to accomplish the object sought to be achieved by the Section.


The quantum punishment for offence under section 138 of the Act provides for the imprisonment for a maximum period of 2 years or fine or both for dishonor of cheque. In the case of K. Bhaskaran v. Sankaran Vaidhyan Balan. Penalty is restricted to Rs.5, 000/- besides imprisonment; but magistrate can make liberal use of Sec. 357(3) of the Code. A Magistrate can award any sum as compensation to alleviate the grievance of the complainant by making resort to Sec. 357(3) of the Code.

Stop Payment Instructions by the drawer:

A complaint under section 18 can also me made if the drawer of the cheque instructs its bank to stop payment. In Rangappa vs. Mohan, AIR 2010 SC 1898 it was held that, section 138 of the Act can indeed be attracted when a cheque is dishonored on accused of stop payment instruction sent by accused to his bank in respect of a post-dated cheque, irrespective of insufficiency of funds in the account.

Post-dated Cheque:

Post-dated cheque is a cheque which is written by the drawer for a date in the future. Post-dated cheque is issued either as security cheques for loans or as advance that is to ensure the trustworthiness of the payer to its supplier. In the case of N. Sivalingam vs. A.V. Chandraiyar, 1996 it was held that A post dated cheque is deemed to have been drawn on the date it bears and the six months period for the purpose of the section 138 is to be reckoned from that date.

In the view of the above mentioned provision, time and notice are the essence for recovering the amount under section 138 of the Act.


The Negotiable Instruments Act, 1881

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