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An overview of Section 138 of the Negotiable Instruments Act

Vrinda Tanna


Negotiable Instruments have been used in commercial world for a long period of time as one of the convenient modes for transferring money. Before 1988 there was no effective legal provision to restrain people from issuing cheques without having sufficient funds in their account or any stringent provision to punish them. Of course, on dishonor of cheques, a civil liability accrued. With a view to protect drawee of the cheque need was felt that dishonor of cheque be made punishable offence. With that purpose Sec.138 to 142 were inserted by Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988. This was done by making the drawer liable for penalties in case of bouncing of the cheque due to insufficiency of funds with adequate safeguards to prevent harassment of the honest drawer.

However, in due course it was observed that the courts were unable to dispose of the cases expeditiously and in time bound manner. The loop holes were rectified by the amendment of the year 2002 and hence, the Negotiable Instruments (Amendment and Miscellaneous provisions) Act, 2002 was passed. The provisions of sec.143 to 147 were newly inserted and provisions of section 138, 141, 142 were amended.


The object of this amendment Act was a) to regulate the growing business, trade, commerce and Industrial activities. b) To promote greater vigilance in financial matters. c) To safeguard the faith of creditors in drawer of cheque. The Hon’ble Supreme Court in the matter of Modi Cements Ltd. v. Kuchil Kumar Nandi, (1998) 3 SCC 249, observed that “The object of Chapter XVII, containing Sections 138 to 142, is to promote the efficacy of banking operations and to ensure credibility in transacting business through cheques.”


The essential ingredients of the offence as contemplated under Sec.138 of the Act were pointed out by Supreme Court in the matter of Kusum Ingots and Alloys Ltd vs Pennar Peterson Securities Ltd, (2000) 2 SCC 745 which reads as follows:

“(i) a person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account for the discharge of any debt or other liability;

(ii) that cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity whichever is earlier;

As per RBI guidelines, with effect from April 1, 2012, the validity period of Cheques, Demand Drafts, Pay Orders and Banker's Cheques have been reduced from six months to three months, from the date of mentioned in the instrument.

(iii) that cheque is returned by the bank unpaid. either because of the amount of money standing to the credit of the account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;

(iv) the payee or the holder in due course of the cheque makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;

(v) the drawer of such cheque fails to make payment of the said amount of money to the payee or the holder in due course of the cheque within 15 days of the receipt of the said notice.


There are presumptions under Section 118 and 139 of the Negotiable Instruments Act in favour of holder of the cheque that it was drawn for discharge of debt or liabilities. However, it is rebuttable one and accused can rebut it without entering into witness box, through cross-examination. Complainant is not absolved from liability to show that cheque was issued for legally enforceable debt or liability. Burden on accused in such case would not be as light as it is in the cases under sec.114 of the Evidence Act. It is clear from Section 27 of the General Clauses Act, 1897 and Section 114 of the Evidence Act, 1872 that once notice is sent by registered post by correctly addressing to the drawer of the cheque, the service of notice is deemed to have been effected. However, the drawer is at liberty to rebut this presumption, N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737.

The Supreme Court in a catena of cases has address the issue if the addressee refuses to receive the notice and has held that when a notice is sent by registered post and is returned with postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station” or “intimation served, addressee absent”, due service has to be presumed, N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737.

Once the execution of cheque is admitted, Section 139 creates a presumption that the holder of a cheque receives the cheque in discharge, in whole or in part, of any debt or other liability, Basalingappa v. Mudibassapa, 2019 SCC OnLine SC 491.

Many times, cheques are issued bearing no date or post-dated cheques. The Supreme Court in the matter of Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, held that if a signed blank cheque is voluntarily handed over to a payee, towards some payment, the payee may fill up the amount and other particulars. This in itself would not invalidate the cheque. The Hon'ble Bombay High Court in case of Purushottamdas Gandhi vs. Manohar Deshmukh 2007 (1) Mh.L.J. 210 observed that inserting such date does not amount to tampering or alteration.


Considering the ingredients of sec.138 referred above, the Hon'ble Supreme Court in case of K. Bhaskaran vs. Shankaran, had held that any of the following places have the jurisdiction to initiate the prosecution -

1. Where cheque is drawn.

2. Where payment had to be made.

3. Where cheque is presented for payment

4. Where cheque is dishonored.

5. Where notice is served up to drawer.

However, in case of Dashrath Rupsingh Rathod vs. State of Maharashtra, the 3 judge bench of the Supreme Court took a strict approach and held that the territorial jurisdiction under section 138 should be exclusively be determined and considered by place of the offence. The return of the cheque by the drawer bank only constitutes the commission of offence under section 138.

The legal position regarding territorial jurisdiction of the courts in cases of dishonor of the cheque has completely changed with the new amendments i.e. the Negotiable Instrument (Amendment) Act, 2015 which has retrospectively came into force from 15th July, 2015. New Clause i.e. section 142 (2) has been added in section 142 which stipulates provisions for the local jurisdiction of the court where the offence under Section 138 shall be inquired into and tried and new sub section 142A in inserted in the Act which stipulates provisions for validation for transfer of pending cases.

Supreme Court rulings for speedy disposal of cases under Section 138 of the Act

1. M/s Meters and Instruments Private Ltd and Anr. V. Kanchan Mehta 2018(1) SCC 560

The Respondent filed complaint alleging that the appellants were to pay a monthly amount to her under an agreement. Cheque was given in discharge of legal liability but the same was returned unpaid for want of sufficient funds. In this case, Two-Judge Bench of Supreme Court made some key observations regarding dishonor of cheque cases and also issued directions for speedy disposal of cheque cases under Section 138 of NI Act. The court noted that use of modern technology needs to be considered not only for paperless Courts but also to reduce overcrowding of Courts and at least some number of Section 138 cases can be decided online

2. Kishan Rao v. Shankargouda (2018) 8 SCC 165

In this case the Apex Court discussed its view on two legal propositions. Firstly, about the revisional jurisdiction of the High Court where the Apex Court held that High Court in exercise of revisional jurisdiction shall not interfere with the order of the Magistrate unless it is perverse or wholly unreasonable or there is non-consideration of any relevant material, the order cannot be set aside merely on the ground that another view is possible. Secondly, presumption in favour of holder of cheque under Section 139 of NI Act where court held that the accused may adduce evidence to rebut the presumption, but mere denial regarding existence of debt shall not serve any purpose.

3. Uttam Ram v. Devinder Singh Hudan (2019) 10 SCC 287

The respondent had procured packing material on credit from the appellant, Uttam Ram, to carry apple crop bought from various growers. It was found that the respondent owed money for which a cheque was issued. The cheque, however, bounced and the appellant filed a complaint. Supreme Court held that the burden of proving the due amount should not be on the complainant as if he has to prove a debt before a civil court. Rather, the burden to rebut the presumption of debt in cheque bounce case under Section 138 of Negotiable Instruments Act is on the accused.

Recent Development

The Central Government through The Negotiable Instrument (Amendment) Act, 2018 has notified amendments to the NI Act by incorporating several new provisions which came into effect from September 1, 2018. The provisions now allows the Court trying an offence related to cheque bouncing, to direct the drawer to pay interim compensation not exceeding 20% of the cheque amount to the complainant within 60 days of the trial court's order to pay such compensation. This interim compensation may be paid either in a summary trial or in a summons case where the drawer pleads ‘not guilty’ to the accusation made in the complaint; or upon framing of charge in any other case.

Our View

The amendments to the Act are a great effort aimed at strengthening efficacy and expediency. It will help in speedy disposal of cases and also discourage the frivolous and unnecessary litigation. Further, it upholds the interests of the complainant by providing interim compensation and ordering payment by the accused in case of appeal against conviction.

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