Cheques have been one of the most widely used instruments for making payments in business and personal transactions. They represent not only a mode of payment but also a symbol of trust between the drawer (the person issuing the cheque) and the payee (the person receiving the cheque). However, when a cheque is dishonored, it not only leads to financial loss but also shakes the foundation of trust. To address this issue, the Negotiable Instruments Act, 1881, provides a specific legal framework under Section 138 to deal with cases of cheque dishonor.
Meaning of Dishonor of Cheque
A cheque is said to be “dishonored” when the bank refuses to honor it upon presentation. The most common reasons for dishonor include:
- Insufficient funds in the account of the drawer.
- Signature mismatch.
- Stop payment instructions by the drawer.
- Account closure.
- Post-dated cheque presented before its due date.
- Alterations on the cheque without authentication.
Among these, insufficient funds and stop payment are the most frequent grounds that give rise to criminal liability under Section 138 of the Act.
Legal Provisions under Section 138 of the Negotiable Instruments Act
Section 138 lays down the conditions under which dishonor of cheque becomes a punishable offense:
- The cheque must have been issued for the discharge of a legally enforceable debt or liability.
- The cheque must be presented to the bank within three months (or within its validity period, whichever is earlier).
- Upon dishonor, the payee must send a written legal notice to the drawer within 30 days of receiving information from the bank.
- The drawer must make the payment within 15 days of receiving the notice.
- If payment is still not made, the payee can file a criminal complaint in the court within 30 days from the expiry of the 15-day period.
Punishment for Dishonor of Cheque
If proven guilty, the drawer can face:
- Imprisonment up to 2 years, or
- Fine up to twice the cheque amount, or
- Both imprisonment and fine.
This provision acts as a deterrent and ensures accountability in commercial dealings.
Landmark Judgments
The Indian judiciary has played a vital role in strengthening the law on dishonor of cheques. Courts have consistently emphasized that the intention of the legislature is to promote the reliability of cheques as a substitute for cash transactions and to ensure credibility in financial dealings.
Why This Law is Important?
- Builds confidence in cheque transactions.
- Protects the payee’s interest.
- Reduces the possibility of fraudulent practices.
- Promotes discipline and trust in commercial dealings.
Conclusion
Dishonor of cheque is not merely a financial issue but also a matter of credibility and trust. The provisions under the Negotiable Instruments Act ensure that cheque transactions remain reliable and enforceable. For businesses and individuals alike, it is essential to understand these provisions to safeguard their rights and obligations.
