DISHONOUR OF CHEQUES

Negotiable
Instruments
ADITHYA KIRAN.A
FCA, CFA(U.S.A),DHLA,CCO,CFM, MA[Economics].
CA ADITHYA KIRAN FCA, CFA (USA), CCO(IIBF), DHLA(IIBF),
CFM(BSE), MA(ECON)

Applicability Non-Applicability
Sec.138 is applicable only
for cheques issued to
discharge legally
enforceable debt
Sec.138 is not applicable for
cheques issued as gift,
donation, moral obligation
or illegal consideration
1. Initially court presumes that cheque is issued to
discharge legally enforceable debt.
2. However, the drawer has a right to prove that cheque
was not issued to discharge legally enforceable
obligation but for other reasons (Sec.139).
3. The effect of this presumption is to place the
evidential burden on the accused (Respondent: A
person against whom complaint has been filed).
Dishonor of Cheque – Offence u/s 138
CA CFA ADITHYA KIRAN
eluruadithyakiran@yahoo.com
8885814554

Reasons for Dishonor of Cheque
8885814554
Sec.138 is not applicable for every dishonor of cheque. It is
applicable only if the cheque is dishonored due to following
reasons:
1. Funds in the Current A/c or Savings A/c is insufficient to
honor the cheque; or
Drawer cannot argue that when the cheque is issued he had
no reason to believe that cheque will be dishonored (Sec.140). In
other words, even if cheque is dishonored without any
negligence of drawer, still it is deemed that he has committed
an offence.
2. Cash Credit limits sanctioned by the bank are insufficient
to honor the cheque.
3. Stop payment instructions issued by Drawer to Drawee
Banker / Paying Banker

Payee/Holder in Due Course duty
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1. Cheque should be presented to the bank within its validity
period (3 months or less);
A post-dated cheque is deemed to have been drawn on the date it
bears and the three months period for the purposes of section 138 is
to be counted from that date. (e.g., If a cheque is issued by Drawer
on 01.01.2021 but 01.02.2021 is mentioned on the cheque, then the
validity period will start from 01.02.2021).
2. P/HDC will receive intimation from the Collecting Banker that
cheque is dishonoured (01.01.2021)
3. Within 30 days (on or before 31.01.2021) the P/HDC shall give
notice of dishonour to Drawer.
4. Payee/HDC should wait for 15 days (till 15.02.2021) to see
whether the drawer will make the payment.
5. Payee/HDC shall file a complaint in the court within 1 month
from the expiry of the said 15 days (on or before 15.03.2021)

Punishment to Drawer for Dishonor of Cheque
8885814554
1. Imprisonment up to 2 years; or
2. Fine up to twice the amount of the cheque; or
3. Both.
The above punishment will be attracted to the
drawer only if:
a) The reason for issue of cheque is satisfied (i.e.,
legal enforceable liability);
b) Payee/Holder performed his duties (i.e.,
issuing notice of dishonour within 30 days and
filing a complaint within 1 month)

Who is Liable Who is not Liable
1. Person who is in charge of
and responsible for the
business
2. Director (D), Manager (M),
Secretary(S) or other
Officer (O), with whose
consent or connivance, the
offence is committed.
3. DMSO whose negligence is
attributable to the offence.
1. Persons who proved that
offence was committed
without his knowledge.
2. Persons who proved that
they exercised all due
diligence to prevent the
offence.
3. Director of the Company
nominated by Govt.
Offences by Companies/Firms (Sec.141)
8885814554

8885814554
A promoter has borrowed a loan on behalf of co. He is neither a director
nor a person-in-charge, sent a cheque from the companies A/c to
discharge its legal liability. Subsequently the cheque was dishonored and
the compliant was lodged against him. Does he liable for an offence u/s
138?
As per Sec.141, if the person committing the offence is a co, then every
person, who is in charge of and was responsible for the conduct of Co’s
business, at the time of offence, shall be deemed to be guilty of
offence.
Further, if it is proved that an offence has been committed with the
consent or connivance of any Director/Manager/ Secretary/Officer or
the offence is attributable to their negligence, they shall also be
deemed to be guilty of offence.
In the given case, the cheque was sent by a promoter, who is neither a
director nor a person in charge of co’s affairs.
Further, the cheque was not drawn on an account maintained by him
but was drawn on an account maintained by the company.
Therefore, the promoter cannot be deemed to be guilty of committed
an offence u/s 138.

Cognizance of Offences (Sec.142)
To which Court Complaint shall be filed:
1. Metropolitan Magistrate. (or) 2. First Class Judicial Magistrate
Court’s inferior (below) the above courts shall not try an offence u/s 138
Who can file Payee or Holder in Due Course
When a
complaint
shall be filed
Within 1 month from the expiry of 15 days referred under
proviso to Sec.138(c). Complaint will be accepted even after
1 month, if the complainant proves to the court that there
is a sufficient reason for not filing a complaint within the
said period of 1 month.
In which
Place
complaint
can be filed
Cheque delivered for
collection through an A/c
Cheque delivered by
P/ HDC (i.e., Uncrossed Cheque)
Place where the P/HDC
maintains the A/c.
This is applicable, even if
the cheque is presented
at some other branch
other than the branch
where A/c is maintained.
Place where the Drawer
maintains the A/c.
8885814554

Mr.A sold goods to Mr.B. Mr.B holds an account in ICICI Bank,
Jaynagar Branch, Banglore. Mr.B issued a cheque in favor of Mr.A.
Mr.A holds an account with Axis Bank, Himayat Nagar Branch,
Hyderabad. Mr.A deposited the cheque at Axis Bank, Mylapore
Branch, Chennai. The Cheque is dishonored. Determine before
which court the complaint shall be filed.
 As per Sec.142(2) if the cheque is delivered for collection through
an account and is dishonored, the complaint has to be filed at the
court having jurisdiction over the place where the payee or holder
in due course maintains the A/c.
 Further, if a cheque is delivered for collection at any branch other
than the branch where the payee or HDC maintains the A/c, then
it shall be deemed that cheque is deposited at the branch where
the A/c is maintained.
 In the given case, though the cheque is deposited at Mylapore
Branch, Chennai, the Payee Mr.A has maintained the A/c at
Himayat Nagar, Hyderabad.
 Therefore, the complaint has to be filed before the court having
jurisdiction over Himayat Nagar, Hyderabad.
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Power of court to try cases summarily [Sec.143]
Applicable
Provisions
Provisions of Code of Cr Procedure shall apply to
offence relating to Dishonor of Cheques.
Speedy
Trial
1. As far as possible, trial of a case shall be
continued on a daily basis until its conclusion.
2. If the trial is adjourned beyond the next day,
then the court shall record the reasons
Time Limit Efforts shall be put to conclude the trial within 6
months from the date of filing of the complaint.
Punishment In case of summary trial, the Magistrate may
order:
a) Imprisonment up to 1 Year; and
b) Fine exceeding ₹ 5,000
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Regular Trial
Reason
why
summary
trial is not
used
If it appears to the magistrate that having regarding
to the nature of the case, imprisonment of more than
one year may be imposed,
The magistrate may choose to use shift away from
Summary and shift to Regular Trail.
Procedure
to be
followed
(i) Magistrate shall hear the partis arguments;
(ii) Reasons shall be recorded for not using
Summary Trail;
(iii) Any witness already examined to be recalled
again; or
(iv) Entire case has to be reheard again in the
manner provided by the code.
8885814554

Interim Compesation (Sec.143A).
Applicability The court may order drawer to pay interim compensation
1. If drawer pleads not guilty of accusation; or
2. Charges are framed,
as the case may be.
Amount Maximum 20% of the amount of cheque
Time for
payment
IC shall be paid by drawer to Complainant, within 60 days of
court order or within next 30 days if extended by the court
IC if not paid, shall be recoverable as Fine u/s 421 of Cr Pc
Convicted
(Court confirmed that offence is
committed)
Acquitted
(Court released the Drawer saying he
has not committed an offence)
1. Fine will be imposed u/s 138;
2. Compensation will be awarded
u/s 357 of Cr Pc.
IC shall be reduced from such
Fine/Compensation and the Drawer
shall pay the net amount.
Complainant shall repay the
following amounts to Drawer:
a) IC earlier paid by Drawer;
b) Interest at RBI specified rate,
Within 60 days of court order or
within next 30 days of extension.
8885814554

Deposit for Appeal (Sec.148).
Deposit by
Drawer to
Appellate
Court (AC)
 Drawer is convicted u/s 138;
 Drawer filed an appeal;
 Appellate Court may order the drawer to deposit up
to 20% of the fine or compensation awarded by trail
court
Such deposit shall be made within 60 days of court
order or within next 30 days if extended by the court
Release by
AC to
Complainant
The Appellate Court (AC) may order for release of
such deposit amount to the Complainant
Repayment
by
Complainant
to Drawer
If the drawer is acquitted in appeal, then the
complainant shall repay the deposit amount released,
along with interest at the bank rate
Repayment shall be made within 60 days of court
order or within next 30 days extended by the court.
8885814554

DISHONOUR OF CHEQUES

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