LIABILITY FOR DISHONOR OF CHEQUES

BANKING LAW
PROJECT ASSIGNMENT

RICHA SINGH
8TH SEM
201289

CERTIFICATE
Certified that the project report on liability for dishonour of cheques is my original work
and that it complies with all the formalities prescribed in the regulations.

TABLE OF CONTENTS
1. Research Methodology
2. Introduction
3. Dishonour of Cheques Meaning
4. Dishonour of Cheque - Interpretation of Section 138
5. Dishonour of Cheque Offence By Drawer
6. Proceedings against Dishonour of Cheque
7. Offences - Cheating and Forgery
8. Liability for Stopped Payment
9. Drawers Liability for Dishonour of Cheque
10. Drawees Liability for Dishonour of Cheque
11. Dishonour of Cheque - Liability of a Company
12. Conclusion
13. Bibliography

TABLE OF CASES AND STATUTES

Table of Cases
1. Pankajbhai Nagjibhai Patel v. State
2. Abdul Samod v. Satya Narayan Mahavir
3. Jogendra Nath Chakrawarti v. New Bengal Bank Limited [AIR 1939 Cal. 63]
4.

Mahendra A.Dadia V. State of Maharashtra (2000) (1) Civil Court Cases 438
(Bom.)

5. Kody Elecot Ltd v. Down Town Hospital

6. Gibbons v. Westminster Bank (1939) 3 All E.r. 577
7. Gyan Chand Kotia v. Indian Renewable Energy Development Agency Ltd. (2000)
99 Comp Cas 517 (Del).
8. Anil Hada v. Indian Acrylic Ltd. (2000) 99 Comp Cas 36 (SC)
9.

Pankaj Mehra v State 2000 Cri LJ 1781 (SC)

Table of Statutes
1. Negotiable Instruments Act, 1881
2. Civil Procedure Code, 1908
3. Code of Criminal Procedure, 1973
4. Indian Penal Code, 1860

RESEARCH METHODOLOGY
Aims and objectives
The project aims at studying the various aspects related to dishonour of cheques and
liability arising therefrom. It begins by defining the concept of dishonour of cheques and
then proceeds to the liability arising out of such dishonour and the laws related thereto.
The ultimate objective is to understand the liability and the penal provisions for
dishonour of cheques and then to understand its application in the Indian context.
Scope
The scope of the project has been restricted to the broad topics like the laws applicable
and the procedures followed. The author has limited the scope to a very conceptual and
theoretical understanding of dishonour of cheques and liability arising therefrom.
Method of writing
The researcher has endeavored to use a combination of descriptive and analytical styles
of writing throughout this project and has cited various case laws for better understanding
of the topic. More emphasis has been placed on the descriptive style of writing.
Sources of Data
The main sources have been textbooks, articles and web-search.

INTRODUCTION
Advent of cheques in the market have given a new dimension to the commercial and
corporate world, its time when people have preferred to carry and execute a small piece
of paper called cheque than carrying the currency worth the value of cheque. Dealings in
cheques are vital and important not only for banking purposes but also for the commerce
and industry and the economy of the country. But pursuant to the rise in dealings with
cheques, the practice of giving cheques without any intention of honoring them has also
risen. In case a cheque is issued by a person in liquidation of his debt or liability, and
same is dishonoured, then it not only creates a bad taste, but can also result in harassment
and can cause damages to the person to whom the cheque may have been issued.
Since business activities have increased, the attempt to commit crimes and indulge in
activities for making easy money have also increased. Thus besides civil law, an
important development both in internal and external trade is the growth of crimes and it
has been found that the banking transactions and banking business is every day being
confronted with criminal actions and this has led to an increase in the number of criminal
cases relating to or concerned with the banking transactions.
In India, cheques are governed by the Negotiable Instruments Act, 1881, which is largely
a codification of the English Law on the subject. 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 in the event of such cheque not being
honoured by their bankers and returned unpaid. Although, on dishonour of cheques there
is a civil liability accrued, however in reality the processes to seek civil justice becomes
notoriously dilatory and recover by way of a civil suit takes an inordinately long time. To
ensure prompt remedy against defaulters and to ensure credibility of the holders of the
negotiable instrument a criminal remedy of penalty was inserted in Negotiable
Instruments Act, 1881 in form of the Banking, Public Financial Institutions and
Negotiable Instruments Laws (Amendment) Act, 1988 which were further modified by
the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002[3].

MEANING OF DISHONOUR OF CHECK:

Section 6 of the Negotiable Instruments Act, 1881 defines a cheque as
"a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand".
"Dishonour" means "to refuse or neglect to accept or pay when duly presented for
payment of a bill of exchange or a promissory note or draft on a banker.1
Section 91 - Dishonor by non- acceptance
"A bill of exchange is said to be dishonored by non-acceptance when the drawee, or one
of several drawee not being partners, makes default in acceptance upon being duly
required to accept the bill, or where presentment is excused and the bill is not accepted.
Where the drawee is incompetent to contract, or the acceptance is qualified the bill may
be treated as dishonored".
Section 92- Dishonour by non-payment
"A promissory note, bill of exchange or cheque is said to be dishonored by non-payment
when the maker of the note, acceptor of the bill or drawee of the cheque makes default in
payment upon being duly required to pay the same".
Thus if on presentation the banker does not pay, then dishonour takes place and the
holder acquires at once the right of recourse against the drawer and the other parties on
the cheque.
Dishonour of cheque has been considered as a criminal offence under Section 138 of the
Negotiable Instruments Act, 1881. According to Section 138 whenever any cheque for
discharge of any legally enforceable debt or other liability is dishonoured by the bank for
want of funds and the payment is not made by the drawer despite a legal notice of
demand, it shall be deemed to be criminal offence.
1

Vide Whartons Law Lexicon, 1978 Ed. p. 335

DISHONOUR OF CHEQUE - INTERPRETATION OF SECTION 138

Section 138 of the Negotiable Instruments Act, 1881
Dishonour of cheques is considered as an offence under Section 138 of the Negotiable
Instruments Act, 1881. Section 138 deals with Dishonour of cheque for insufficiency of
funds in the accounts. The Section reads as follows:
"Where any cheque drawn by a person on an account maintained by him with a banker
for payment of any amount of money to another person from out of that account for the
discharge, in whole or in part, of any debt or other liability, is returned by the bank
unpaid, either because of the amount of money standing to the credit of that 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 that bank, such person shall be deemed to have
committed an offence and shall without prejudice to any other provisions of this Act, be
punished with imprisonment for a term which may extend to two year, or with fine which
may extend to twice the amount of the cheque, or with both.
Provided that nothing contained in this section shall apply unless(a) The 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.
(b) The payee or the holder in due course of the cheque, as the case may be, 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 thirty days of the receipt of information by him from the
bank regarding the return of the cheques as unpaid, and
(c) The drawer of such cheque fails to make the payment of the said amount of money to
the payee or, as the case may be, to the holder in due course of the cheque, within fifteen
days of the receipt of the said notice".

Exclusion of Mens Rea2

For committing an offence under Section 138 of the Act "mens rea" is not an essential
ingredient3.
Section 138 of the Negotiable Instruments Act, 1881, excludes mens rea by creating strict
liability and this is explicit from the words 'such person shall be deemed to have
committed an offence'. The returning of the cheque by the bank either because he amount
of money standing to the credit of the drawer of the cheque is insufficient or the amount
covered by the cheque is in the excess of the amount arranged to be paid from that
account by an agreement with the bank are the two necessary conditions creating strict
liability.
Ingredients and requirements of the penal provisions
Section 138 creates an offence for which the mental elements are not necessary. It is
enough if a cheque is drawn by the accused on an account maintained by him with a
banker for payment of any amount of money to another person from out of that account
for discharge in whole or in part, of any debt or other liability due. Therefore, whenever
the cheques are on account of insufficiency of funds or reasons referable to the drawers
liability to provide for funds, the provisions of section 138 of the Act would be attracted,
provided the following conditions are satisfied:
1. Cheque drawn on a bank account
2. Issue of Cheque in discharge of a debt or liability
If the above conditions are fulfilled, irrespective of the mental conditions of the drawer
he shall be deemed to have committed an offence, provided the other four requisites are
fulfilled:
2

Mens Rea, a guilty mind Although prima facie and as a general rule there must be a mind at fault before there can be a crime, it is
not an inflexible rule, and a statute may relate to such subject-matter and may be so framed as to make an act criminal, whether there
has been any intention to break the law or otherwise to do wrong or not. There is a large body of Municipal law at the present day
which is so conceived Wills R. v. Tolson, (1889) 23 Q.B.D 173 (vide Whartons Law Lexicon 14th Ed., Fifth Imp., 1992).
3
Mahendra A.Dadia V. State of Maharashtra (2000) (1) Civil Court Cases 438 (Bom.)

a) Presentation of the cheque within six months or within the period of its validity
b) Return of the cheque unpaid for reason of insufficiency of funds
c) Issue of the notice of dishonour demanding payment within thirty days of receipt of
information as to dishonour of the cheque.
d) Failure of the drawer to make the payment within fifteen days of the receipt of the
payment

10

DISHONOUR OF CHEQUE OFFENCE BY DRAWER

The maker of cheque (who signs the cheque) is called the `drawer'.
When a person is aware of the fact that there are no funds in one's bank account if he
issues cheque to a trader for goods purchased, the bank will return the cheque for
insufficiency of funds. By issuing a cheque under such circumstance, drawer commits an
offence under Section 138 of the Negotiable Instruments Act.
On the cheque being dishonoured, the payee in terms of Section 138 of the Act can call
upon the guilty to pay the money covered by the returned cheque within 30 days from the
date of return, only after serving a notice of dishonour to the drawer. If the drawer does
not pay the amount despite the notice within 15 days from the receipt thereof, the drawer
commits an offence under Section 138 of the Negotiable Instruments Act, 1881.
Notice of Dishonour
Notice of Dishonour is a formal communication of the fact of dishonour of cheque. Subsection (b) of Section 138 of the Negotiable Instruments Act requires the payee or the
holder in due course to issue a notice in writing to the drawer of the cheque within 15
days of the receipt of the information by him from the bank regarding the return of the
cheque as unpaid. The sub-section further provides that the drawer has to comply with the
demand within 15 days of the receipt of the said notice.
Cause of Action
Cause of action for prosecution under section 138 of the Negotiable Instruments Act does
not arise by mere presentation of the cheque in bank and by its dishonour.
Written Complaint
A complaint is required to be filed by the payee or the holder in due course of the
dishonoured cheque.

11

Section 142 (a) of the Negotiable Instruments Act, makes it clear that only upon a
complaint in writing made by the payee or the holder in due course of the cheque, the
court can take cognizance of the offence. If the payee or the holder in due course does not
file a complaint, the drawer cannot be prosecuted.
Cognizance of Offence
In terms of Section 142 of the Negotiable Instruments Act, 1881, no court shall take
cognizance of any offence punishable under section 138 except upon a written complaint
made by the payee or the holder in due course of the dishonoured cheque and filed within
one month of the date on which the cause of action arose. No court inferior to that of a
metropolitan magistrate or a first-class judicial magistrate can try an offence under
section 138.
Section 142 states that the cognizance of an offence can be taken under Section 138 upon
a complaint in writing which must be made within one month by the payee or holder in
due course from the date on which the cause of action arises under clause (c) of the
proviso to section 1384. In substance we can say that when a drawer, served with a notice
within 30 days from the date on which the payee or the holder in due course has come to
know about the return of the cheque and the drawer does not make the payment as
demanded, the complaint shall have to be filed within 30 days from the date on which the
15 days time expires.

Kody Elecot Ltd v. Down Town Hospital

12

PROCEEDINGS AGAINST DISHONOUR OF CHEQUE

Prior to the incorporation of chapter XVII in the Negotiable Instruments Act in 1988, to
deter and penalize the issue of worthless cheques, it was only under the provisions of the
Indian penal Code 1860 (IPC that the drawer of a cheque could be criminally prosecuted
if it could be shown that he cheated someone by issuing the cheque. Even after the
introduction of the specific provisions in the Negotiable Instruments Act, a drawer can be
prosecuted under IPC for cheating, but he cannot be prosecuted and punished for the
same offence under both the enactments. Mens rea or dishonest intention must be
established to prove cheating, but it is not an essential element of an offence under
section 138 of the Negotiable Instruments Act.
Criminal Proceeding Chapter XVII of the Negotiable Instruments Act
Chapter XVII inserted by the Banking, Public Financial Institutions and Negotiable
Instruments Laws (Amendment) Act, 1988 provides for penalties in case of dishonour of
certain cheques for insufficiency of funds in the accounts or for the reason that the
amount exceeds the arrangement made by the drawer.
As per the penal provisions under the Act, the drawer, committing an offence under
Section 138, is liable to be punished with imprisonment for a term which may extend to
two years, or fine which may extend to twice the amount of the cheque or both.
OFFENCES - CHEATING AND FORGERY
Cheating being an offence is defined under Section 415 of the Indian Penal Code as
follows:
"Whoever, by deceiving any person, fraudulently or dishonestly induces the person so
deceived to deliver any property to any person, or to consent that any person shall retain
any property, or intentionally induces the person so deceived to do or omit to do anything
which he would not do omit if he were not so deceived, and which act or omission causes
or is likely to cause damage or harm to that person in body, mind, reputation or property,
is said to "cheat".

13

In order to bring the case within the definition of Cheating under section 415 of the IPC,
it has to be shown by the prosecution that there was some inducement on the part of the
accused persons and the said inducement was made fraudulently or dishonestly with a
view to deceive the complainant. It is further to be shown by the prosecution that due to
deception practiced by the accused persons, the person so deceived had delivered the
property to the accused persons or had given consent that the accused person shall retain
that property.
To hold a person guilty of the offence of cheating it has to be shown that his intention
was dishonest at the time of making the promise.
Cheating by Personation
Section 416 of IPC defines cheating by personation as follows:
"A person is said to cheat by personation if he cheats by pretending to be some other
person, or by knowingly substituting one person for another, or representing that he or
any other person is a person other than he or such other person really is.
Offence of cheating by personation is punishable under section 419 of IPC whereas
general cheating is punishable under section 417 and section 417 of IPC.
Forgery
Section 463 of IPC defines forgery as:
"Whoever makes any false documents or electronic record part of a document or
electronic record with, intent to cause damage or injury, to the public or to any person, or
to support any claim or title, or to cause any person to part with property, or to enter into
any express or implied contract, or with intent to commit fraud or that fraud may be
committed, commits forgery."
Section 464 of IPC deals with making a false document and provides as under:
A person is said to make a false document or false electronic record-

14

Firstly -Who dishonestly or fraudulently makes, signs, seals or executes a document or

part of a document or makes or transmits any electronic record or part of any electronic
record, affixes any digital signature on any electronic record, or makes any mark denoting
the execution of a document or the authenticity of the digital signature, with the intention
of causing it to be believed that such document or part of document, electronic record or
digital signature was made, signed, sealed, executed, transmitted or affixed by or by the
authority of a person by whom or by whose authority he knows that it was not made,
signed, sealed, executed or affixed; or
Secondly- Who, without lawful authority, dishonestly or fraudulently, by cancellation or
otherwise, alters a document or an electronic record in any material part thereof, after it
has been made, executed or affixed with digital signature either by himself or by any
other person, whether such person be living or dead at the time of such alteration; or
Thirdly- Who dishonestly or fraudulently causes any person to sign, seal, execute or alter
a document or an electronic record or to affix his digital signature on any electronic
record knowing that such person by reason of unsoundness of mind or intoxication
cannot, or that by reason of deception practised upon him, he does not know the contents
of the document or electronic record or the nature of the alterations.
Punishment for Forgery
Whoever commits forgery shall be punished with the imprisonment of either for a term
which may extend to two years or with fie or with both.5
Bankers liability for payment made on forged cheques
Relationship between a banker and his customer is that of a debtor and creditor. When a
cheque with a forged signature is presented, the banker has no authority to make
payments on it, and if he does make such payment he would be acting contrary to the law
and would be liable to the customer for the said amount. A bank in such cases can escape

Section 465 of Indian Penal Code

15

liability only if it can show that the customer is not entitled to make a claim on account of
adoption, estoppel or ratification.
LIABILITY FOR STOPPED PAYMENT
A stopped payment is usually requested if the cheque has been declared missing or lost.
But many a times the drawer, to escape his debt or liability has used it as an instrument of
deception. The 1988 amendment in Section 138 of Negotiable Instruments Act is also
silent about Stopped Payment.
A customer has a right to give notice to his Bankers to stop payment of a cheque which
he has issued. Generally a written notice, signed by the drawer is sufficient to stop the
payment. A stopped payment is usually requested if the cheque has been declared missing
or lost.
In India, while there is as such no express provision relating to stop payment of cheques.
However there are various judgments regarding this aspect. Indian Courts have covered
this facet in Section 138 of Negotiable Instruments Act, which is related to dishonour of
cheques.
In Abdul Samod v. Satya Narayan Mahavir High Court of Punjab and Haryana
thoroughly analyzed section 138 of the Act. Honble Mr. Justice A.P. Chowdhury stated
that there are five ingredients, which must be fulfilled.
These are as follows:
1. The cheque is drawn on a bank for the discharge of a legally enforceable debt or
other liability.
2. The cheque has returned by the bank unpaid.
3. The cheque is returned unpaid because the amount available in that account is
insufficient for making the payment of the cheques.

16

4. The payee gives a notice to the drawer claiming the amount within 15 days of the
receipt of the information by the Bank and
5. The drawer fails to make payment within 15 days of the receipt of notice.
The above mentioned case-laws supports the preposition that while holding any drawer
liable under Section 138, the Court should first see that whether payment was made to the
within 15 days of notice or not. The reason for dishonour is immaterial because if the
drawer is bonafide then he may make the payment of the amount due under the cheque
within the grace period i.e 15 days.
DRAWERS LIABILITY FOR DISHONOUR OF CHEQUE
Section 30 of the Negotiable Instruments Act, 1881 reads as follows:
"the drawer of a bill of exchange or a cheque is bound, in case of dishonour by the
drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour
has been given to, or received by, the drawer".
Section 30 makes it imperative that the notice of dishonour should of necessity be served
on to the drawer of such cheque. It is clear that the drawer shall be bound to compensate
the payee or the holder, as the case may be, if only he has been served with the notice of
dishonour.
Section 138 of the Negotiable Instruments Act requires that the payee or the holder in due
course of the cheque to issue a notice in writing to the drawer making a demand for
payment of the cheque amount. Such notice must be given within 30 days of information
from the bank regarding the return of cheque as unpaid.
The criminal liability cannot be fastened to the heirs and the legal representatives of the
person who is said to have been guilty of the offence in question.

17

Drawer declared insolvent

The drawer cannot escape from the criminal liability by putting forward he plea that he is
not bound to discharge the liability mentioned in the complaint as he was already
declared as an insolvent, especially when there is section 139 permitting the court to
presume that there is an existing liability and the issuance of the cheque was made
towards the discharge of the said liability.

18

DRAWEES LIABILITY FOR DISHONOUR OF CHEQUE

Rightful Dishonour - when bank may refuse to honour
When there is the relationship of banker and customer between the parties, the banker is
under an obligation to pay cheques when a mandate to pay is received from the customer,
or when a cheque is issued.
These are the cases which may be termed as a countermand from the customer which
means an order to revoke the former instructions and annulling the former mandate given
by the customer to the bank to honour the cheques and it also means the situations
resulting from the closure of account by the customer, prohibitory 'garnishees' orders
having been received from the court or orders for payment having been received from the
court or orders for payment having been received under Section 226 (3) of the IncomeTax Act, 1961 and similarly it also means the situation when there is a restrained order
from the court, notice of death of the customer, lunacy of the customer, notice of loss of
cheque or forged signatures on the cheque.
Wrongful dishonour of cheque Drawee/ banks liability to pay damages
In case all the conditions which are necessary for the payment of a cheque are present and
have been fulfilled then if the bank dishonours a cheque it will amount to a breach of
contract for which the banker is liable to pay damages.
The liability of drawee of cheque in case of a wrongful dishonour has been dealt with
under Section 31 of the Negotiable Instruments Act, 1881.
The position of law has also been made clear in a number of authorities. Reference may
be made to the following:
In Jogendra Nath Chakrawarti v. New Bengal Bank Limited 6, it was held, "where the
banker, being bound to honour his customers cheque, has failed to do so, he will be
liable in damages. If, special damage, naturally ensuing from the dishonour, is proved, it
will be properly taken into account in assessing the amount of the damages. If the
6

AIR 1939 Cal. 63

19

customer be a trader, the court may properly award substantial damages, in the absence of
proof of special damages. In other cases the customer will be entitled to such damages as
will reasonably compensate him for the injury which, from the nature of the case, he has
sustained. All loss flowing naturally from the dishonour of a cheque may be taken into
account in estimating the damages.
Compensation for wrongful dishonour
Wrongful dishonour of a cheque exposes the drawee bank to statutory liability to the
drawer to compensate him for 'any loss or damage cause by such default'.
The principle of awarding compensation to the drawer of a cheque is reparation for the
injury sustained or likely to be sustained by reason of dishonour. There appears to be a
distinction between a trader and a non-trader in this respect, while a trader is always
entitled to substantial damages for dishonouring of his cheque, a non-trader will be
entitled only to nominal damages in the absence of an allegation and proof of substantial
damages7.

Gibbons v. Westminster Bank (1939) 3 All E.r. 577

20

DISHONOUR OF CHEQUE - LIABILITY OF A COMPANY

Since a company is an artificial person it is incapable of committing any crime
personally. However, if certain crimes are committed by its officials in the name of the
company then in such circumstances a company is said to have committed these crimes.
So far as the punishment is concerned, its liability can be only in terms of fine. The
company shall be responsible for the acts of commissions and omissions of the persons
working for the company.
Section 141 (1) of the Negotiable Instruments Act, 1881 reads as follows:
"If the person committing an offence under section 138 is a company, every person who,
at the time the offence was committed, was in charge of, and was responsible to the
company for the conduct of the business of the company, as well as the company, shall be
deemed to be guilty of the offence and shall be liable to be proceeded against and
proceeded against and punished accordingly;
Provided that nothing contained in this sub-section shall render any person liable to
punishment if he proves that the offence was committed without his knowledge, or that
he had exercised all due diligence to prevent the commission of such offence".
The Vicarious liability of a person for being prosecuted for commission of an offence by
the company arises if at the time when the offence is alleged to have been committed, he
was in charge of and was responsible to the company for the conduct of its business. It is
necessary that there have to be averments in the complaints that the petitioners were in
charge of and were also responsible to the company for the conduct of its business of the
company8.
Thus, it can be concluded that three categories of persons can be discerned from the said
provision who are brought within the purview of the penal liability through the legal
fiction envisaged in the section. They are: (1) The company, the principal offender, which
committed the offence; (2) Every one who was in charge of and was responsible for the
business of the company; (3) Any other person who is a director or a manager or a
8

Gyan Chand Kotia v. Indian Renewable Energy Development Agency Ltd. (2000) 99 Comp Cas 517 (Del).

21

secretary or officer of the company, with whose connivance or due to whose neglect the
company has committed the offence9.
However, in case an employee of the company proves that the offence was committed
without his knowledge or that he had exercised all due diligence, then he may not be
prosecuted under the Act. In case he proves that after due diligence he could not prevent
the commission of the offence, it may provide a valid defence.
Winding up proceedings pending
A company cannot escape from a penal liability under section 138 of the Act on the
premise that a petition for winding up of the company has been presented and was
pending during the relevant time. The Company cannot avert its liability on the mere
ground that the winding petition was presented prior to the company being called upon by
a notice to pay the amount of the cheque.
There is no provision in the Companies Act, 1956 which prohibits enforcement of the
debt due from the company. When a company goes into liquidation, enforcement of debt
due from the company is only made subject to the conditions prescribed therein. But that
does not mean that the debt has become unenforceable altogether10.

Anil Hada v. Indian Acrylic Ltd. (2000) 99 Comp Cas 36 (SC)

Pankaj Mehra v State 2000 Cri LJ 1781 (SC)

10

22

CONCLUSION
The law relating to Negotiable instruments is the law of the commercial world which was
enacted to facilitate the activities in trade and commerce, making provision of giving
sanctity to the instrument of credit which would be deemed convertible into money and
easily passable from one person to another. In the absence of such instruments, the trade
and commerce activities were likely to be adversely affected as it was not practical for the
trading community to carry on with it the bulk of currency in force.
The main object of the Act is to legalise the system by which instruments contemplated
by it could pass from hand to hand by negotiation like any other goods.
Chapter XVII was inserted in the Act 1988 with a view to promote the efficacy of
banking operations and to ensure credibility in transacting business through cheques.
Though insertion of the penal provisions have helped to curtail the issue of cheque
lightheartedly or in a playful manner or with a dishonest intention and the trading
community now feels more secured in receiving the payment through cheques. However
there being no provision for recovery of the amount covered under the dishonoured
cheque, in a case where accused is convicted under section 138 and the accused has
served the sentence but, unable to deposit amount of fine, the only option left with the
complainant is to file civil suit. The provisions of the Act do not permit any other
alternative method of realization of the amount due to the complainant on the cheque
being dishonored for the reasons of "insufficient fund" in the drawers account.
However, the processes to seek civil justice is notoriously dilatory and recover by way of
a civil suit may take inordinately long time therefore if the Government of India could
establish a tribunal to deal with the dishonour of cheques and the liability arising
therefrom, it could make the process of recovery of damages faster for the aggrieved
party. For example, the Debts Recovery Tribunals have been established by the
Government of India under an Act of Parliament (Act 51 of 1993) for expeditious
adjudication and recovery of debts due to banks and financial institutions. Establishment

23

of a similar tribunal to deal with the cases of dishonour of cheques could perhaps provide
a faster relief to the aggrieved party.

24

BIBLIOGRAPHY
1. R.K Suri; Dishonour of Cheques- Prosecution & Penalties, ALT Publishers,
Hyderabad;
2. S.N. Gupta, Dishonour of cheques-Liability Civil & Criminal, Universal Book
Traders, Delhi;
3. Rajesh Gupta, Dishonour of cheques Law and Practice, Bharat Law House
Pvt Ltd, New Delhi;
4. A.N Saha, Law of Dishonour of cheques, Orient Publishing Company, New
Delhi;
5. S.K. Awasthi, Law of Dishonour of cheques Forgery and Cheating, CTJ
Publications, Pune;
6. R. Swaroop, Cases on Dishonour of cheques (Under Section 138 to Section
142 of the Negotiable Instruments Act), Law Aid Publications, Madras;
7. Bhashyam & Adiga, The Negotiable Instruments Act, Bharat Law House, New
Delhi;
8. M.S. Parthasarthy, Cheques in Law and Practice, Universal Law Publishing
Co. Pvt. Ltd., Delhi;
9. S. Chand, Business laws, S. Chand and Company Ltd., New Delhi;
10.

Article by T.N Pandey, Dishonour of cheques: whether all directors of a

company can be prosecuted in case of dishonour of cheques.

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