Latest News

Cheque Dishonour: A Critical Analysis of the Negotiable Instrument Act 1881


Md. Mamonor Rashid[1]

Bank is the best helping hand to run the business, and as such the use of cheques for the business transactions have been increased in the past decade. Due to the extensive portions of transactions via this method, the possibility of a cheque being dishonoured is significantly high. The government of People’s Republic of Bangladesh has taken a number of steps to provide sufficient legal remedy in order to tackle and minimize this dilemma.[2] The most vital law that is enacted to provide legal remedy against such situation is called Negotiable Instruments Act 1881.[3]

It is worth noting that offence of dishonour of cheque as mentioned in section 138 of the  NI Act is considered as a criminal offence.[4] The law has been designed to punish and not to recover an amount due. The section, however, keeps the possibility of recovery as the holder of the cheque may be paid by the court an amount up to the cheque amount from any fine that is recovered. If someone wishes to recover unrealized money then he or she can file a civil suit for recovery of money. However, in reality it has been found that filing a criminal proceeding under section 138 has been the most effective form of recovery of money. Most of the times, the drawers pay the amounts due when cases under NI Act are commenced in the anticipation of conviction.

Section 6 of the NI Act has defined what constitutes as cheque, which states that “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. Furthermore, a cheque has also been defined in case laws as an order upon a debtor by a creditor to pay to a third person the whole or part of a debt. Whenever a cheque does not clear due to insufficient fund or if the person who gave the cheque ordered his bank to cancel the said cheque or for any other reason the remedy will lie under Section 138 of NI Act.

As per section 138 of the NI Act, where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or part, of any debt or other liability, is returned by the bank unpaid because of the amount of money standing to the credit of that account in insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence.[5]

Objectives of Negotiable Instruments Act:

  1. To regulate the growing business, trade, commerce and Industrial activities.
  2. To promote greater vigilance in financial matters.
  3. To safeguard the faith of creditors in drawer of cheque.

Categories of Negotiable Instruments:

  1. Promissory notes
  2. Bill of Exchange
  3. Cheque

Section 138 of Act deals with dishonour of cheques. It has no concern with dishonour of other negotiable instruments.

Categories of Cheques:

  1. Open cheque:The issuer of the cheque would just fill the name of the person to whom the cheque is issued, writes the amount and attacheshis signature and nothing else. This type of issuing a cheque is also called bearer type cheque also known as open cheque or uncrossed cheque. The cheque is negotiable from the date of issue to three months. The issued cheque turns stale afterteh completion of three months. It has to be revalidated before presenting to the bank.
  2. Bearer cheque: Same as Open Cheque
  3. Crossed cheque: It is written in the same as that of bearer cheque but issuer specifically specifies it as account payee on the left hand top corner or simply crosses it twice with two paralled lines on the right hand top corner. The bearer of the cheque presenting it to the bank should have an account in the branch to which the written sum is deposited. It is safest type of cheques.
  4. Account Payee cheque: Same as Crossed Cheque
  5. Self cheque: A self cheque is written by the account holder as pay self to receive the money in the physical form from the brach where he holds his account.
  6. Pay yourself cheque: The account holder issues this type of crossed cheque to the bank asking the bank to deduct money from his account into bank’s own account for the purpose of buying banking products like drafts, pay orders, fixed deposit receipts or for depositing money into other accounts held by him like recurring deposits and loan accounts.
  7. Post datedcheque: A PDC is a form of a crossed or account payee bearer cheque but post dated to meet the said financial obligation at a future date.
  8. Local cheque: A local cheque is a type of cheque which is valid in the given city and a given branch in which the issuer has an account and to which it is connected. The producer of the cheque in whose name it is issued can directly go to the designated bank and receive the money in the physical form. If a given city’s local cheque is presented elsewhere it shall attract some fixed banking charges. Although these type of cheques are still prevalent, especially with nationalised banks. It is slowly stated to be removed with at par cheque type.
  9. At par cheque: With the computerisation and networking of bank branches with its head quarters, a variation to the local cheque has become common place in the name of at par cheque. At par cheque is a cheque which is accepted at par at all its branches across the country. Unlike local cheque it can be presented across the country without attracting additional banking charges.
  10. Banker’s cheque: It is a kind of cheque issuedby the bank itself connected to its own funds. It is a kind of assurance given by the issuer to the client to alley your fears. The personal account connected cheques may bounce for want of funds in his account. To avoid such hurdles, sometimes, the receiver seeks banker’s cheque.
  11. Traveller’scheque:This is a kind of an open type bearer cheque issued by the bank which can be used by the user for withdrawal of money while touring. It is equivalent to carrying cash but in a safe form without fear of losing it.
  12. Gift cheque: This is another banking instrument introduced for gifting money to the loved ones instead of hard cash.

Dishonoured of cheque :

Before filing a case under Section 138 of the NI Act, it is necessary to present the cheque before the bank for encashment within the validity of the cheque which is 6 months from the date of the cheque.[6]

In a situation when, the cheque is dishonoured, the payee/holder will receive a bank memo stating the reason for return of the cheque such as “insufficient fund.[7] Thereafter, the payee/holder can start the process under the NI Act.

Notice to the Drawer: 

Once the cheque has dishonored, the payee/holder needs to send a notice, within 30 days from the date he has received such information from the bank, to the issuer requesting payment allowing him to pay within 30 days of the receipt of the notice. Such notice shall be served by registered post with A/D or by publication in the widely circulated newspaper. [8]

Cause of Action:

Cause of action arises when notice is served on the drawer and drawer fails to make payment of the amount of cheque within 30 days.[9]

Procedure to file a case under section 138 of the NI Act:

Limitation to file complaint is 30 days(one month) from the date of cause of action. The payee/holder must file a case before the Court within the next 30 days from the date when such cause of action arose.[10] However, the court is empowered to take cognizance of the offence even if complaint is filed beyond one month by condoning the delay if sufficient cause is shown.[11]

Examination of Complainant on Oath:

The Negotiable Instrument Act does not override the provisions of section 200 of the Code of Criminal Procedure1898 and it is mandatory for the magistrate to examine the complainant who has filed the same under sec 138 of the NI Act though with an affirmation as regards truthfulness of the contents of the complaint.[12] It, therefore, follows that the magistrate is obliged and duty bound to examine upon oath the complainant and his witnesses before issuance of process under section 204 of theCode of Criminal Procedure1898 though there is a solemn affirmation at the foot of the complainant by the complainant.[13]

Presumption under Section 139 NI Act:

It shall be presumed, unless the contrary  is  proved, that the holder of a  cheque  received  the cheque of the nature referred to in section 138 for the discharge,  in whole or in part, of any debt or other liability. The effect of these presumptions is to place the evidential burden on the accused of proving that the cheque was not received by the complainant towards the discharge of any liability. Because both sections 138 and 139 require that the court shall presume the liability of the drawer of the cheques for the amounts for which the cheques are drawn.[14]

Complaint under 138 can be filed by Pleader or Power of Attorney Holder:

No condition precedent that complaint should have been signed by the payee as holder of cheque.[15] A complaint need not be presented by complainant himself. Pleader or power of attorney holder is competent to file the complaint. [16]

The  Negotiable Instruments Act does not specifically state that the payee or holder in due course of the cheque shall lodge the complaint himself; the power of attorney holder who has every authority to sign and act on behalf of the principal can lodge a complaint under sec 138 NI Act.[17]

Death of Original Complainant:

Death of original complainant after filing of complaint, son of the deceased came to be added as complainant subsequent to taking cognizance of offences. The Proceedings do not abate and son of deceased complainant can come on record and continue prosecution.[18] Death of complainant at any stage of evidence of defence his legal heirs entitled to continue prosecution. [19]

Death of Accused:

Proceedings in the complaint alleging offence under section 138 cannot be initiated against legal heirs of the person who had issued the cheque.[20]

Settlement during Trial:

The payment by the accused of the full cheque amount during the pendency of trial under section 138 does not absolve the accused of his liability for the offence of dishonor of cheque. However, the courts take a lenient view in such cases and the accused is set free or punished lightly.[21] Moreover, if the parties enter into a settlement, it should be respected by the courts as proceedings under sec 138 are quasi criminal in nature. [22]

Cheque Dishonored Punishment in Bangladesh: 

As per section 138 of NI Act in relation to Cheque Dishonour in Bangladesh, when any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge of any debt or other liability and such cheque is returned by the bank unpaid because of insufficient fund to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed the offence under NI Act. Such person shall be punished with imprisonment for a term which may extend to one year, or with fine which may extend to thrice the amount of the cheque, or with both.[23]

If the person committing an offence under section 138 is a company every person who at the time the offence is committed was in charge of and was responsible to the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.[24] However, the person shall not be liable to punishment if he proves that the offence was committed without his knowledge or that he had exercised all due delegate to prevent the commission of such offense.

Appeal against the Order of Punishment:             

Under section 138A of the negotiable instrument act, notwithstanding anything contained in the Code of Criminal Procedure, 1898, no appeal against any order of sentence under sub-section (1) of section 138 shall lie, unless an amount of not less than fifty per cent of the amount of the dishonoured cheque is deposited before filing the appeal in the court which awarded the sentence.

Alternative remedy in case of failure to file case under section 138 of NI Act:

Order 37 of the Code of Civil Procedure 1908 deals with the summary procedure on Negotiable Instruments which can be used for Recovery of payment. A suit upon bill of exchange or hundi or promissory note may be filled in the District Court by presenting a plaint in the form prescribed. [25]

Upon consideration of the application by the defendant, the Court may give leave to the defendant to appear and defend the suit. [26]

The Court may, under special circumstances, set aside the decree after the decree. [27]The Court may order the negotiable instrument sued upon being deposited with the Court. [28] The holder of a negotiable instrument shall have the same remedies for the recovery of expenses in noting the non-acceptance or non-payment as he has under this Order to recover the amount thereof.[29] The procedure for the suit under this Order is the same as that of a suit in the ordinary manner.[30]

This Order governs recovery of payment regarding dishonored cheques in a short time. These sorts of cases are considered to be strict liability and the verdicts are given fast. Apart from the order, a general moneysuit can be filed to recover the payment of a dishonored cheque.

However, criminal actions can be brought under sections 406 and 420 of the Penal Code 1860 for Criminal breach of Trust and cheating.[31]

Writer acknowledges the help of  B&M Legal Team

[1] The Writer is the Sub Editor of Bd Law News, He can be reached at

[2] Md. Sirajuddwla Vs. State &Anr 8 SCOB [2016] HCD 100

[3] (Act No. XXVI of 1881) (“NI Act”)

[4]Choudhury, Justice MdMiftahUddin, and Justice ANM Bashir Ullah.”Supreme Court of Bangladesh.” (2016).

[5]Dittus, Timothy R. “Constitutional Law-Statutes-Criminal Liability Based upon Ability or Defendant to Pay for Affirmative Defense to Charge of Issuing Insufficient Funds Check Is a Violation of the Equal Protection Clause.” NDL Rev. 61 (1985): 131.

[6] Sub section 3 (a)

[7]Beutel, Frederick K. “Proposed Uniform Bank Collections Act and Possibility of Recodification of the Law on Negotiable Instruments.” Tul. L. Rev. 9 (1934): 378.

[8]Nurul Huda (Md) vs State & others 2017, LEX/BDHC/0058/2017 &Section 138 , Sub section 3 (b) of NI Act

[9] Section 138 , Sub section 3 (b) of NI Act

[10] Ibid

[11] Limitation Act, section 5

[12]Beutel, Frederick K. “The Development of State Statutes on Negotiable Paper Prior to the Negotiable Instruments Law.” Columbia Law Review 40, no. 5 (1940): 836-865.

[13] AIR 2007 (NOC) 1372 (BOM) ; 2007 (3) AIR BOM R 181 (DB)

[14] Section 139 of NI Act

[15]Pennock, Sean, Eric Dotson, Scott Harris, and Keith Reeves. “Remote negotiable instrument processor.” U.S. Patent Application 12/803,975, filed January 12, 2012.

[16] AIR 2007 (DOC) 286 (RAJ.); 2 (2007) BC 206

[17] AIR 2007 (DOC) 51 KER.;2006 (3) BANK J 425 (KER)

[18] AIR 2007 (DOC) 271 (A.P.) ; 2006 (3) CIVIL COURT CASES 294

[19] AIR 2007 (DOC) 222 (RAJ.) ;  2007 (1) RAJ L W 4

[20] AIR 2007 (DOC) 58 (P&H) ; 2006 (3) BANK J 327 (P&H)

[21]Eggert, Kurt. “Held Up in Due Course: Codification and the Victory of Form over Intent in Negotiable Instrument Law.” Creighton L. Rev. 35 (2001): 363 &AIR 2007 (DOC) 264

[22] AIR 2007 (DOC) 264

[23] Section 138 of the NI act

[24] The Daily Star, ChequeDishonour, March 17, 2015

[25] Order 37, rule 1&2 of the Code of Civil Procedure 1908

[26]Khan vs Presiding Judge, 54 DLR 121 &Order 37, rule 3 of the Code of Civil Procedure 1908

[27] Ibid , rule 4

[28] Ibid , rule 5

[29] Ibid , rule 6

[30] Ibid , rule 7

[31]AminurRahman (Md) vs State and another 8 BLC 518 &Shamsul Islam Chwdhury (Md) VsUttara Bank Ltd 11 BLC 119 &Nurul Islam vs State and another 49 DLR 464

Leave a Reply

Your email address will not be published. Required fields are marked *