Special Contracts · Negotiable Instruments

Dishonour of Negotiable Instruments

Learn civil dishonour rules and the complete Section 138 cheque-bounce process, including timelines, presumptions, company liability and jurisdiction.

8 min readReviewed by Advocate Aditya Sharma
Sections 91 to 98Sections 118, 138 to 148

In one line

Cheque dishonour becomes a Section 138 offence only when every statutory ingredient and timeline is satisfied.

After this note, you should be able to

  • Distinguish dishonour by non-acceptance and non-payment.
  • Apply the Section 138 timeline in order.
  • Use presumptions, defences and company-liability rules correctly.

Dishonour and notice

The general law applies to notes and bills, while Section 138 creates a specific cheque offence.

Non-acceptance
A bill is dishonoured when the drawee defaults in acceptance or gives a qualified acceptance that the holder may reject.
Non-payment
A note, bill or cheque is dishonoured when the maker, acceptor or drawee defaults on proper presentment for payment.
Notice
The holder must ordinarily notify parties sought to be made liable, unless a Section 98 exception applies.
Civil compensation
Section 117 permits recovery of the amount due and qualifying expenses, independent of Section 138 prosecution.

Section 138 checklist

Missing one statutory step can defeat the complaint.

Legally enforceable liability
The cheque must discharge, wholly or partly, an existing legally enforceable debt or other liability.
Presentation
Present within its validity. RBI directions make cheques payable for three months from their date, which is earlier than the six-month statutory outer wording.
Demand notice
The payee or holder in due course must issue written demand within 30 days of receiving bank information about dishonour.
Payment window
The drawer receives 15 days from receipt of notice to pay. The offence and cause of action arise only after failure within that period.
Complaint
A written complaint by the payee or holder in due course must ordinarily be filed within one month from cause of action under Section 142.

Proof and procedure

The statute uses rebuttable presumptions to improve cheque reliability.

Presumption
Once execution is established, Sections 118 and 139 support consideration and legally enforceable liability. The accused may rebut on a preponderance of probabilities.
Companies
Section 141 requires attention to the company and persons responsible for its business, with specific rules for consent, connivance and neglect.
Jurisdiction
For collection through an account, jurisdiction ordinarily follows the payee's bank branch under Section 142(2).
Interim and appellate payment
Section 143A permits interim compensation up to 20 percent. Section 148 permits an appellate deposit of at least 20 percent after conviction.
Compounding
Section 147 makes offences under the Act compoundable, encouraging payment-based resolution.

Work through the facts

Illustration

Facts

B's cheque is returned unpaid. A receives the return memo on 1 June, sends written demand on 20 June, and B receives it on 24 June but does not pay.

Likely result

The notice is within 30 days. Cause of action arises after B's 15-day payment window expires, and the one-month complaint period is then calculated under Section 142.

What to learn

Calculate each date separately and never count the complaint period directly from dishonour.

Cases with a purpose

Landmark judgments

Learn the rule and where to use it. A case name without its legal function adds little to an answer.

Rangappa v. Sri Mohan

Further reading

(2010) 11 SCC 441

Principle: Section 139 includes a rebuttable presumption of legally enforceable debt, rebuttable on the civil standard of preponderance of probabilities.

Use in an answer: Use it whenever signature or execution is admitted and the defence disputes the underlying liability.

Read primary judgment

C.C. Alavi Haji v. Palapetty Muhammed

Further reading

(2007) 6 SCC 555

Principle: Correctly addressed registered notice attracts a presumption of service, subject to proof to the contrary.

Use in an answer: Use it where the drawer avoids, refuses or disputes receipt of the demand notice.

Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd.

Further reading

(2012) 5 SCC 661

Principle: For vicarious liability under Section 141, arraigning the company as an accused is ordinarily imperative.

Use in an answer: Use it in cheque cases involving companies, firms and responsible officers.

For a 10-mark answer

Answer structure

  1. Identify legally enforceable debt and execution of the cheque.
  2. Calculate validity, 30-day notice and 15-day payment periods.
  3. Fix cause of action, one-month complaint limitation and jurisdiction.
  4. Apply presumptions, rebuttal and Section 141 where relevant.

Common mistakes

  • Calculating complaint limitation from the bank return date.
  • Treating every dishonoured cheque as automatically criminal.
  • Ignoring legally enforceable debt or company arraignment.

Before you close the tab

Quick revision

  • Current cheque validity is three months.
  • Demand notice must follow within 30 days.
  • Drawer gets 15 days after receipt.
  • Complaint follows within one month after cause of action.
  • Section 139 presumption is rebuttable.

Test yourself

  1. When does the cause of action arise?
  2. What standard rebuts Section 139?
  3. Which court has territorial jurisdiction?

Short answers

Frequently asked questions

Does a stop-payment instruction prevent Section 138 liability?

Not automatically. If the statutory ingredients and legally enforceable liability exist, stop-payment dishonour may still attract Section 138.

Can a dishonoured cheque be presented again?

Yes, it may be presented again within its validity, and a compliant statutory notice may follow the relevant dishonour.

Primary sources

This is an educational study note. Read the bare provision and full judgment before relying on a proposition in research or practice.