Meaning of Dishonour of Cheque- Section 138 of Negotiable Instruments Act

The dishonour of cheque mainly happens because most of the people are not aware of creating and operating our bank accounts and the services given by the banks. That is the main reason that we make minor mistakes while writing the cheque. So, it becomes important for us to know about the exact meaning of the banking terms to safe our money and to protect our cheque of being rejected by the banks. Section 138 of Negotiable Instruments Act deals with the punishment and Meaning of dishonour of cheque.

First, let’s know about the Drawer, drawee and payee which are the parties in the case of Cheque. The person who has a bank account and writes or draws the cheque of his bank is known as Drawer. The bank is known as the drawee and the person to whom the cheque is payable is known as Payee.

But, in the case of Self-cheque, the Drawer himself will be the payee.

Meaning of Dishonour of cheque

The Meaning of Dishonour of Cheque is very simple. When Payee gives the cheque to the bank, there are two conditions, either the check will be accepted or rejected by the bank. In legal terms, if the bank gives the amount (written in the cheque) to the Payee, is called honour of cheque. But, if the bank refuses to pay money to the Payee, is known as the Dishonour of Cheque.

When the cheque is rejected or dishonoured by the bank, the bank issues the receipt, which is called Cheque return Memo and dishonoured check to the payee of the cheque. The payee can resubmit the cheque within 3 months, after resolving the issues with the cheque.

Do not forget to read out article on Free Consent| Indian Contract Act, 1872

Also, the Payee has to give the notice to the drawer of the cheque within the 30 days after receiving the Cheque return Memo which is given by the bank. The notice should contain the point that cheque amount will be paid within 15 days by the drawer after receiving the notice.

It the Drawer is still failed to pay the money to the payee within 30 days after receiving the notice sent by the payee; The Payee has the right to file a criminal case against the Drawer under section 138 of Negotiable Instruments Act.

Section 138 of Negotiable Instruments Act, 1881

According to Section 138 of Negotiable Instruments Act, if a cheque which is given to Payee by the Drawer, drawn by the drawer on the account maintained by him with a bank, is returned by the bank unpaid, either the reason is insufficient of money in the account or the cheque exceeds the amount to be paid from that account by an agreement between Drawer and bank, the Drawer shall be recognized as the accused of committing the crime of Dishonour of cheque and shall be punished with the imprisonment, which can be extended upto 2 Years, or fine which can be extended to two times of the amount given in the Cheque or Both.

The condition is, the cheque must be presented in the bank within the 6 months from the date when the cheque was drawn by the Drawer or within the period of the validity of the cheque.

How to Write a Cheque?

Let’s know about the points which should be written on Cheque:

  • The date on the upper right-hand corner..
  • Mention the name of the Payee: it the payee is a company and you don’t know its exact name, then try to get the real name with the exact spelling of the company.
  • Write the amount on the Cheque.
  • Sign the cheque on the specific: sing must be original and clear.

Reasons for the dishonour of Cheque

If you have written everything mentioned above, then your cheque is dishonoured due to any of give reason:

  1. Insufficient funds: – it is a very common reason due to which the bank refuses to accept the cheque because of insufficient balance in your account. Let’s make it easy to understand, You write a check with the amount of one lakh because you know that your salary which is 2 lakh will be credited shortly into your account but due to some reasons, salary is not credited to your account and in the meantime, payee tries to apply the check into your account, the bank will dishonour the check because of the insufficient amount.
  2. Different Amount in Words and Figures: – if you have written the different amount in words and figures, the bank will dishonour the cheque.
  3. Signature Differ: – if your signature is not correct or doesn’t match with the specimen available in the bank.
  4.  Alterations / Overwriting on cheque: – bank will not accept the cheque which is altered or overwritten.
  5. The cheque is Post Dated: – postdated cheque means the date written on the cheque is yet to come. Let’s take an example, you have written the date 1st November 2021 on the cheque, but the payee present in for payment on 29th October 2021, the cheque will not be accepted by the bank.
  6. Stale Cheque or outdated cheque: – If the cheque is presented in the bank after 3 months of the issuing date, the bank will dishonour the check by giving the reason of Stale check.
  7. Payment Stopped by Drawer: – The check will be dishonour by the bank if Drawer stops the payment due to any reasons.
  8. Inoperative Account: – if the bank found the account attached to cheque is inoperative, the cheque will be dishonoured.
  9. Death or Lunacy of the drawer: – If the bank receives the information about the death of lunacy of the drawer, the cheque will be dishonoured.
  10. By court orders:-If the court has given the order to the bank to stop payment on the cheque, the bank will dishonour the cheque.

Cases of Dishonour of Cheque

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