Dishonour of Cheque

Dishonour of Cheque: When a Promise in Writing Becomes a Crime

A cheque is a promise to pay, drawn on the credit of a bank account. When that promise is broken — when the cheque is presented and returned unpaid — the drawer has, in commercial terms, defaulted on the obligation the cheque represented. In most jurisdictions, this default is a civil matter: the payee may sue for the amount. India is distinctive in that the dishonour of a cheque, issued for the discharge of a legally enforceable debt or liability and returned for insufficiency of funds, is a criminal offence under Section 138 of the Negotiable Instruments Act, 1881, punishable with imprisonment. This criminalisation, introduced in 1988 to strengthen the credibility of the cheque as an instrument of payment, has made Section 138 one of the most litigated provisions in Indian criminal law.

The Statutory Conditions

For an offence under Section 138 to be made out, several conditions must be cumulatively satisfied: (a) the cheque must have been drawn on an account maintained by the drawer with a banker; (b) it must have been issued for the discharge, in whole or in part, of any legally enforceable debt or other liability — a cheque issued as a gift, or without consideration, does not attract Section 138; (c) it must have been presented within its validity period (currently six months from the date of the cheque, or within the validity period if shorter); (d) it must have been returned unpaid for insufficiency of funds or because the amount exceeds the arrangement with the bank; (e) the payee must have given written notice demanding payment within 30 days of receiving information of the dishonour; and (f) the drawer must have failed to pay the amount within 15 days of receiving the notice. Only upon the expiry of this 15-day period does the offence crystallise and the cause of action arise.

Procedure, Jurisdiction, and Defences

The procedure for a Section 138 complaint is governed by the Negotiable Instruments Act read with the CrPC/BNSS framework. The complaint must be filed within one month of the date the cause of action arises (with the proviso for the time spent pursuing pre-litigation). Jurisdiction lies with the Magistrate's court where the cheque was delivered, where it was presented, or where the dishonour occurred — a wide territorial jurisdiction affirmed by the Supreme Court in Dashrath Rupsingh Rathod v. State of Maharashtra and subsequently addressed by legislative amendment. The principal defences available to the drawer include: the absence of a legally enforceable debt (the cheque was not issued for consideration); the statutory notice was not properly given or the 15-day period had not expired; the cheque was issued under coercion or as a security and not for a present liability; or the dishonour was for a reason other than insufficiency of funds (a 'account closed' return may attract Section 138; a 'refer to drawer' or 'signature mismatch' return may not). The presumptions under Sections 118(a) and 139 of the Act — that the cheque was issued for consideration and that it was so issued for the discharge of a debt — shift the burden of proof to the accused, though the standard remains that of preponderance of probability, not beyond reasonable doubt.

“The dishonoured cheque, in India, is no mere broken promise — it is a breach that the criminal law will pursue. The legislature, deciding that the credibility of the cheque as a payment instrument demanded more than civil remedy, attached to its dishonour the sanction of imprisonment. The provision is harsh in its reach, but it has made the Indian cheque an instrument that a drawer ignores at his peril.”