Dishonour of Cheque

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If a cheque is duly presented for payment of money in a bank, and it is returned for reasons assigned by the payee bank for non-payment or non-acceptance, then the cheque is said to have been dishonoured.

The Negotiable Instruments Act does not provide definition of the word “dishonour” but the title of Section 138 lists the shortage of funds, as being one of the conditions contributing to a dishonour of cheque.

In Whartone’s Law Lexicon, the word dishonour is explained with reference to a Bill of Exchange as to refuse or neglect to accept or pay when duly presented for payment.

When the maker (the drawer) of the cheque defaults by not paying the amount of the cheque and who has been required to pay it by depositing into his bank account the amount required to honor the cheque, the cheque is returned and it is dishonoured.

In accordance with Article 138 of the Negotiable Instruments Act, when any cheque drawn by a person on an account held by him with a banker for the payment of any sum of money to another person from and out of of this account for release in whole or any debt or liability, is returned by the unpaid bank, either because the amount of money credited to this account is insufficient to honor the check or exceeds the amount expected to be paid from this account, is said to be the situation for the dishonour of the cheque which is prohibited under section 138 of the Negotiable instruments Act..

Therefore, the concept of dishonour of cheque for other reasons falling within the scope of Section 138 would also be applicable to attract the offence of the above section. The Supreme Court in M/s Electronics Trade & Technology Development Corporation Ltd. vs. M/s Indian Technologists & Engineers (Electronics) Pvt. Ltd observed that as soon as the cheque is drawn and issued to the payee who has presented the cheque and subsequently if any of the directions are issued to the bank for non-payment and the cheque is returned to the payee with such an endorsement, it is termed as dishonour of cheque falling within the purview of Section 138, Negotiable Instrument Act.