Criminalization Of Cheque Dishonor Under Negotiable Instruments Act
Legal Framework
Negotiable Instruments Act, 1881 (NI Act)
Section 138: Deals with dishonor of cheque for insufficiency of funds or exceeding arrangement.
Conditions for Offense under Section 138:
Cheque must be drawn for payment of money.
It must be presented within the validity period.
Bank must return it dishonored due to insufficient funds or no arrangement.
Payee must give a written notice to drawer within 30 days.
Drawer must fail to make payment within 15 days of notice.
Punishment: Imprisonment up to 2 years or fine up to twice the cheque amount.
Other Relevant Sections
Section 142: Cognizance of offenses under Section 138—only based on written complaint by payee.
Section 139: Presumption in favor of holder—cheque presumed to be for discharge of debt until proven otherwise.
Key Cases on Cheque Dishonor under NI Act
1. K.N. Beena v. T.C. Basheer (2000)
Facts: Drawer issued cheque which bounced; claimed it was gift not repayment of debt.
Issue: Does the presumption under Section 139 apply?
Judgment: Kerala High Court held that once a cheque is issued for money, it is presumed to be for discharge of debt unless contrary evidence is provided.
Significance: Reinforced the protection of payee under Section 139 and made the burden of proof on drawer.
2. M/s. Parsvnath Developers Ltd. v. S. Venkat Rao (2005)
Facts: Cheque issued for construction payment dishonored. Drawer claimed technical banking reasons.
Issue: Can drawer escape liability on technical or inadvertent grounds?
Judgment: Delhi High Court ruled that dishonor due to insufficient funds or arrangement triggers Section 138, technical excuses do not absolve liability.
Significance: Emphasized that drawer’s intention or negligence is secondary; dishonor itself constitutes offense.
3. Dalmia Cement Ltd. v. Galaxy Infra & Projects (2009)
Facts: Cheque issued as partial payment, bounced multiple times.
Issue: Does partial payment affect liability?
Judgment: Supreme Court held that even part payment dishonor is actionable under Section 138.
Significance: Section 138 is strict liability; even partial dishonor is punishable.
4. Rajesh Sharma v. Union of India (2012)
Facts: Cheque bounced due to account closure by bank.
Issue: Is drawer liable if dishonor is due to bank’s technical closure?
Judgment: Court held that drawer is liable unless they prove payment was impossible for reasons beyond their control.
Significance: Drawer cannot escape liability on technical banking grounds.
5. State Bank of India v. S. Krishnamurthy (2015)
Facts: Cheque issued for loan repayment dishonored; drawer claimed they were unaware of insufficient funds.
Issue: Does ignorance absolve drawer?
Judgment: Court ruled ignorance is no defense under Section 138, liability is strict.
Significance: Reinforces strict criminal liability in cheque dishonor cases.
6. M/s. Vinayak Traders v. Anil Kumar (2018)
Facts: Cheque issued for commercial transaction, dishonored; drawer argued delay in notice.
Issue: Is timely notice mandatory for Section 138 proceedings?
Judgment: Court held notice within 30 days and payment within 15 days is mandatory; failure invalidates complaint.
Significance: Procedural compliance is essential; otherwise, case may be dismissed.
7. Punjab National Bank v. Meena & Co. (2020)
Facts: Cheque dishonor in business dispute; drawer argued Section 138 not applicable to trade credit.
Issue: Applicability to trade/business transactions.
Judgment: Supreme Court clarified that Section 138 applies to all debts, commercial or personal.
Significance: Confirms broad applicability of Section 138 for both commercial and personal debts.
✅ Key Legal Principles from These Cases
Strict liability: Drawer liable if cheque dishonored; intention is secondary.
Presumption under Section 139: Cheque presumed issued for discharge of debt/loan; burden on drawer to rebut.
Notice requirement is mandatory: Payee must give notice within 30 days; payment within 15 days.
Partial or full dishonor actionable: Even partial dishonor triggers Section 138.
Technical bank issues or ignorance are not defenses: Liability remains unless drawer proves impossibility.
Applies to commercial and personal transactions: Both trade/business and personal debts are covered.
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