Oct 25, 2017
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Cheque bounce case under Negotiable Instrument act,1881

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Cheque bounce case (Dishonor of cheque):

After the amendment for negotiable instruments act,1881 the section related to cheque bounce case was added. Section 138 of the Negotiable Instrument act deal with the cheque bounce case or dishonored of cheque case in India.

Negotiable Instrument:

  1. The Negotiable Instruments Act 1881 was passed in 1882 and was amended in 1989,2002 and 2015, Before 1988 there was no provision to restrain the person issuing the cheque without having sufficient funds in his account. The only remedy against a Dishonored cheque a civil liability accrue.
  2. The word negotiable means ‘transferable by delivery’ and the word instrument means ‘a written document by which a right so created in favor of some person’. The transfer should be unrestricted and in good faith.
  3. Therefore, a negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. It is an indebtedness to pay an amount and the negotiable instrument is an unconditional guarantee for the same.
  4. Some Examples of Negotiable instruments are Promissory notes, Cheques bounce , Bills of Exchange, bearer bonds, bank notes etc.
  5. The Indian law on Negotiable instruments govern by the Negotiable Instruments Act of 1881.

Section 138:  Dishonor of cheque (Cheque bounce case) for insufficiency, etc., of funds in the accounts.

  1. A  person must have drawn a cheque on an account maintained by him in a bank for payment of a certain amount of money to another person from out of that account
  2. The cheque should have issue for the discharge, in whole or in part, of any debt or other liability;
  3. That cheque has present to bank within a period of three months from the date on which it draw or within the period of its validity whichever stated earlier;
  4. That cheque returned by the bank unpaid, either because of the amount of money standing to the credit of the 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 the bank;
  5. The payee or the holder in due course of the cheque 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 30 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
  6. The drawer of such cheque fails to make payment of the said amount of money. Then drawer need to pay payee or the holder in due course of the cheque within 15 days of the receipt of the said notice;

Landmark judgement on cheque bounce case:

Dashrath Roopsingh Rathod Vs. Stae of Maharashtra & Anr.

In this case, the Supreme Court has changed the basic criteria under Section 138 of Negotiable Instruments Act which need to prosecute a person who had presented the cheque which had return due to insufficiency of funds or if the amount exceeds the amount in the bank of the payer.

Earlier, a case under Section 138 could initiate by holder of the cheque at his place of business or residence. But, a bench of justices TS Thakur, Vikramjit Sen and C Nagappan ruled that the case has to initiate at the place where the branch of the bank on which the cheque drawn locate.

And the judgment would apply retrospectively. This means, lakhs of cases pending in various courts across the country. And it would witness a interstate transfer of cheque bouncing cases.

The bench said: “In this analysis, we hold that the place, situs or venue of judicial inquiry and trial of the offence must logically restrict to where the drawee bank so located.”


Mr. X who resides in Mumbai owes Rs. 1 Lakh to Mr. B who resides in  delhi, Mr. X issues a cheque in chennai in favour of Mr. B. The cheque bounces in kolkata (place of bank where the cheque so  given by Mr. B) for insufficiency of funds.

According to the earlier law Mr. X could have chosen any of the four places. But by the recent judgment the only place for institution of case would Ludhiana, i.e. where the cheque has dishonored at the payee bank which locate in Kolkata in this example.

For more information in relation to similar matter and to appoint lawyer for same visit, NEAR LAW


Article Categories:
Negotiable Instrument Act

Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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