kartik mago 2 Apr 2019


Section 138 of Negotiable Instruments Act, 1881

The Negotiable Instruments Act, 1881 talks about three types of instruments. These are promissory notes, bills of exchange and cheques. 'Negotiable' means transferable in regards to consideration. 'Instrument' means a written document creating a right in favor of the other person. Thus negotiable instrument means a document (sum of money) transferable by delivery.

The discharge of liability of the accused has been decided by the various Courts. The concept can be understood by discussing relevant case laws which are as follows:

Joseph Vilangadan v. Phenomenal Health Care Services

The Bombay High Court has held that no liability of the accused arises when the he had issued a cheque merely to serve the purpose of serving as security deposit and not for discharging any of his debt or loan. The language of the agreement is the best source to determine the purpose of drawing a cheque.


Goaplast Pvt. Ltd. v. Shri Chico Ursula Dsouza

In this case, it was held that a post dated cheque is not payable on demand till a particular date. It is not a cheque in the eyes of law till the date it becomes payable on demand.

"When a posted dated cheque is written or drawn, it is only a bill of exchange and as such, the provisions of Section 138 are not applicable to the said instrument."


Anil Kumar Swahney v. Gulshan Rai

In this case, the Supreme Court has held that one of the most important ingredients of Section 138 is the cheque has to be returned by the bank unpaid. There can exist no charge of offence under Section 138 until the bank doesn't return the cheque unpaid, even if the drawee has knowledge of the same beforehand.

Regarding post dated cheques, the Apex Court held that they cannot be presented before the bank until the actual date arrives. only when the post-dated cheque becomes a "cheque", with effect from the date shown on the face of the said cheque, the provisions of Section 138 come into picture.

The conclusion is that a post-dated cheque has the value of a bill of exchange only till the date written on it. In the words of Supreme Court:

With effect from the date shown on the face of the said cheque it becomes a "cheque" under the Act and the provisions of Section 138(a) would squarely be attracted. In the present case the post-dated cheques were drawn in March 1990 but they became "cheques" in the year 1991 on the dates shown therein. The period of six months, therefore, has to be reckoned from the dates mentioned on the face of the cheques.


CC.No.16701 of 2012

Another instance where the accused is not held guilty is when the complainant fails to produce copy of loan agreement and copy of loan account statement. Non- production of these two material documents are fatal to the case of complainant. The cheques, in the present case, were solely issued for the purpose of discharging his liability, but the complainant failed to produce evidence of outstanding existing balance amount. Thus, the Bangalore High Court held that

"Therefore, the Section 138 of NI Act is not applicable to the undated cheques given as a security to loan agreement. As we all know that the cheques collected for the security of loan amount should be treat as a security for the loan amount. Those cheques cannot be used for any other purpose." 



There have been many changes to the law regarding dishonour of cheques, specially with regards to jurisdiction. The Negotiable Act assures a speedy trial in such cases and bring inviolability to the system by reducing default of payments.

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