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Author: Mohini Chaturvedi, Sharda University

Sections 138 to 142 of the Negotiable Instruments Act, 1881 deal with negotiable instruments which includes promissory notes, bills of exchange, cheques. The aim of its introduction was to establish confidence in banking operations and enhance credibility in the use of negotiable instruments.


Section 138 of the Act emphasises on the circumstances in which a case can be filed against dishonour of cheques.

Ingredients required for filing case under Section 138 are:

· There must be a cheque which must be given by a person for payment of money to another person for discharge of any debt or other liability.

· The said cheque is presented before the bank within the term of three months.

· The cheque is returned unpaid on the grounds of insufficient funds or that it exceeds the amount which is to be paid from that account.

· The payee demands the payment of the money from the drawer by giving a notice in writing within 15 days of the receipt of information from the bank regarding the bouncing of the cheque.

· The drawer fails to make the payment within 15 days of the receipt of the notice to the payee.

Under Section 138 of the Act, a dishonour of cheque is punishable with imprisonment, which may extend to two years, or a fine which may extend to twice the amount of the cheque or both. It also attracts a criminal penalty. Firstly, dishonour of cheques was made a criminal offence by the Banking Institutions, Public Institutions, Financial Institutions, and Negotiable Instruments Laws (Amendment) Act, 1988. All the issues relating to the dishonour of cheques were earlier resolved by the civil courts. Under Section 420 r/w Section 415 of the Indian Penal Code, 1960, the payee can seek relief which deals with cheating and dishonestly inducing delivery of a property. The amendment was introduced later to provide express provision to make the drawer of the cheque criminally liable.

When a cheque is dishonoured both civil and criminal liabilities arise. The civil liability provided in Section 138 of the Negotiable Instruments Act, 1881 is the imposition of a fine that may extend to twice the amount of the dishonoured cheque. In the case of criminal liability, Section 138 provides for the punishment of two consecutive years and the prosecution of the drawer takes place under the provisions of the Indian Penal Code, 1860.


The Supreme Court has taken the cognizance of the issue of whether an offence under the Negotiable Instruments Act is equivalent to an offence under the IPC based on gravity in different judgments. The judgment of Meters and Instruments Private Limited v. Kanchan Mehta[1] and the Kaushalya Devi Massand v. Roopkishore Khore[2], emphasised that the offence under Section 138 is considered as a civil wrong which has been given the shape of criminal overtones. The Court held that the gravity of offence under the NI Act cannot be equated with a criminal offence.

The gravity of a complaint in an offence under Section 138 of the Negotiable Instruments (NI) Act is not equivalent to an offence under the Indian Penal Code was reaffirmed by the Supreme Court in the matter of Triyambak S. Hegde v. Sripad.[3]

The Respondent approached the appellant and stated about his financial difficulty for which he wanted to sell his house. An advance amount of Rs.3,50,000 was given by the appellant via an agreement executed by the respondent. On certain inquiries, it was acknowledged that the house was in the name of the father of the respondent. The appellant demanded the return of advance money. A cheque dated 17.05.1998 was issued in the name of the appellant for the amount of Rs. 1,50,000/ out of the entire amount by the respondent. The appellants presented the cheque on 20.05.1998 for the realization of the amount which was dishonoured with the endorsement ‘insufficient funds. The Appellant issued a notice and later on filed a complaint. The appellant was convicted and sentenced to simple imprisonment for the term of six months and a fine of Rs. 2,00,000 ordered by the Magistrate. The appellant filed an appeal in the Sessions Court which was dismissed. The High Court allowed the revision petition filed against said order of the Sessions Court and acquitted the appellant. The court held that an enhanced fine if imposed would meet the ends of justice and if the default happens on the part of the accused then it would invite the penalty of imprisonment.


The Negotiable Instruments (Amendment) Act, 2018 provides that the drawer has to pay the interim compensation limited to 20% of the amount mentioned on the cheque within 60 days of the order of the trial court.

In a summary trial or a summons case, the interim compensation may be paid. The drawer does not plead guilty to the accusations made in the complaint. The Appellate Court is empowered to direct the appellant to deposit a minimum of 20% of the fine or compensation awarded and also the interim compensation in the case under Section 138 of the NI Act.

The case of Mayawati v. Yogesh Kumar Gosain[4]paved a new route to decide offences under Section 138 of the NI Act which is a compoundable offence by nature by the method of the Alternate Dispute Resolution. It was also highlighted that the offences categorized under the Negotiable Instruments Act, 1881 are distinct from other criminal offences and should be resolved differently.


The Negotiable Instruments Act aids in discouraging the abuse of cheques and ensuring that transactions have credibility. The Court must be cautious while dealing with cases of cheque bounce since it entails several technicalities and precise proof of the transactions and which is a deciding factor in awarding punishment. Courts in India are already overburdened with the majority of cases of cheque bounces. Dishonour of cheque causes financial loss, inconvenience and injury to the payee as well as discourages the faith of people in using the negotiable instruments.


· https://www.casemine.com/judgement/in/5609aef0e4b0149711415387#4

· https://www.livelaw.in/news-updates/supreme-court-negotiable-instruments-act-gravity-offence-ipc-182338

· https://blog.ipleaders.in/decriminalization-section-138-ni-act-1881-misguided-unnecessary-proposal/

· https://blog.ipleaders.in/landmark-judgments-section-138-negotiable-instruments-act/

[1] https://indiankanoon.org/doc/160848531/ [2] (2011) 4 SCC 593 [3] https://indiankanoon.org/doc/53363470/ [4] (CRL.REF.No.1/2016)

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