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In this blog, the author has discussed the different types of negotiable instruments and have further given an insight as to the legal standpoint with respect to the dishonour of a cheque.


Section 6 of the Negotiable Instruments Act typically defines ‘cheque’ as a bill of exchange, “an order to a bank to pay a stated sum from the drawer's account, written on a specially printed form”. It is a systematic written document instructing a bank to debit an individual’s account and pay a specific sum to another party/parties.

Cheques can be of many types, like ‘Bearer Cheque’, ‘Crossed Cheque’, ‘Self Cheque’, ‘Post -dated Cheque’, ‘Banker’s Cheque’ and ‘Travelers Cheque’ (E-Cheque).

During this procedure either the cheque gets honoured or it gets dishonoured. A cheque is said to be honoured, if the bank gives the amount to the payee. While on the other hand, if the bank refuses to pay the amount, due to any particular reason, the cheque is said to be dishonoured. Whenever any such kind of situation arises the drawee bank instantly issues a ‘CRM’ (Cheque Return Memo) to the payee banker specifying the reasons for dishonour. The payee banker issues the memo along with the dishonoured cheque to the payee. The payee has an option to resubmit the cheque within the time period of three months of the date specified on the cheque after stating the reason for the dishonour of cheque.

Moreover, the payee has to give a notice to the drawer within 30 days from the date of receiving “Cheque Return Memo” from the bank. The notice should clearly state that the cheque amount will be paid to the payee within 15 days from the date of receipt of the notice by the drawer.

However if the drawer still fails to fulfill the conditions and make a fresh payment within the span of 30 days of receiving the notice then the payee has all the rights to involve a legal proceeding against the delinquent under Section 138 of the ‘Negotiable Instrument Act’, 1881.

What is the meaning of a negotiable instrument?

‘Negotiable’ means ‘transferable by delivery’ and the word ‘Instrument’ means ‘a written document by which a right is created in favor of some person’.

Thus the term ‘Negotiable Instrument’ literally means ‘a written document transferable by delivery’.

According to Section 13 of the Act, a negotiable instrument means ‘a Promissory Note, Bills of Exchange or Cheque payable either to order or to bearer’.

Types of Negotiable Instruments: ‘Promissory Note’, ‘Bills of Exchange’, ‘Cheque’, Others (government promissory notes, railway receipts, delivery orders, etc.)

A cheque can get dishonoured due to various reasons. Some of them are as follows:

  • If the identity (name) of the payee is not clearly mentioned or can be said as absent from the cheque.

  • If the cheque is overwritten.

  • If the signature is not present on the cheque or the signature present does not gets matched with the exemplar signature.

  • If there is some misprinting with the account number or it is absolutely absent.

  • If the drawer becomes insolvent.

  • If the death of the drawer occurs.

  • If the court of law due to any specified reason has ordered to stop the payment on the respective cheque.

  • If the drawer himself/herself asks the bank to stop the payment on the cheque.

  • If the date on the cheque is not clearly mentioned or is incorrectly mentioned.

Section 138 of the Negotiable Instruments Act states that dishonor of cheque is a criminal offence and is punishable with monetary penalty or imprisonment up to 2 years or both. Both Civil as well as Criminal complaint can be filed for the same.[i]

Along with section 138 of NIA there are few other sections which has some relevance:

  1. Section 139 of Negotiable Instruments Act states that it is always taken as that the holder must be a bonafide person in possession of the cheque for the whole or the partial payment of any debt or liability.

  2. Section 140 of the Negotiable Instrument Act states that drawer cannot take the defence that he was unaware of the fact that the cheque will get dishonoured for the above mentioned reasons.

  3. Section 141 of the Negotiable Instruments Act states that if the offence is committed by any company then each and every person who was in charge of that company’s conduct at the time of the offence could be held liable to be punished.

Important Cases

1. Smt. Asha Baldwa v. Ram Gopal[ii]

In the following case the petitioner instituted a petition under section 482 of Cr.P.C for revoking the whole proceeding of a criminal case under section 138 of Negotiable Instrument Act.

The case constituted that the petitioner provided the respondent with a cheque which turned out to be a dishonored one. It was therefore alleged that the petitioner was one of the consenting parties (although she was not the original partner of the firm) to this act of providing the cheque and hence could be held responsibe for the same.

The petitioner then took the defence of Section 141(2) of the Negotiable Instrument Act, 1881 which states that the allegations can be made only against the company or its partners or any other authority associated with it, can be made responsible for this criminal offence.

The main highlight of this case was that if any person who is not directly responsible, or merely a Director of Company or Firm, could be held guilty for the alleged offence, only if he had committed offence with the consent of such person.

2. M/s Meters and Instruments Private Limited & Anr. v. Kanchan Mehta[iii]

In the following case the 2 Judge Bench of the Supreme Court issued directions for the speedy disposal of the cases relating to dishonor of cheques under Section 138 of the Negotiable Instruments Act with the use of modern technology. In the opinion of the hon’ble judges the use of modern technology should be considered not to promote the concept of paperless courts but also to reduce overcrowding of the courts.

These were two of those many landmark judgements which has helped us to understand the actually importance of cheques in the commercial world.


Negotiable instrument Act, 1881 deals with all the provisions of the instruments which are a crucial part of the modern-day commercial transactions due to development in the banking, trading and other commercial sectors. Notice of dishonor designates that the instrument has been dishonored and that the person served with the notice will be held liable. The act provides for liabilities and duties of both the drawer and drawee.

Footnotes [i] Money recovery suit under order 27 of the Civil Procedure Code [ii] S.B. Criminal Misc(Pet.) No. 2726 / 2014 [iii] 2018(1) SCC 560 Submitted by,

Yamya Pandey,

Bharti Vidyapeeth, New Law College, Pune.

(Images used for representational purposes only.)


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