Cheque Bouncing – Sample Questions Page 1


Dishonour of Cheque

Question : What are the conditions that make dishonouring of a cheque an offence? What is the penalty for such dishonoring? In what circumstances the dishonouring of cheque is not an offence?

Answer: The main condition in such cases is that the cheque should be of a legally enforceable liability or debt and the same has been returned by the bank for the reason for insufficiency of funds in the account. Further, it will become an offence under Section 138 of the Negotiable Instruments Act if proper notice in writing to the drawer of the cheque demanding payment is issued and failure on the part of the drawer to make payment within 30 days of receipt of the notice.

The drawer of the dishonoured cheque is liable to be punished under Section 138 of the Act lbid with imprisonment for a term which may extend to two years or with fine upto twice the amount of cheque or both.


However, when a cheque is issued to a charitable trust as a gift or donation or for applying for shares, there is no offence if it is dishonoured, as it is not issued in discharge of legally enforceable debt or other liability. Similarly, if a cheque is dishonoured because of certain reasons like difference in drawer’s signature or the disparity in amount stated in words and figures, alternations in cheques require attestation by the drawer. If the cheque is found mutilated, the dishonouring is not an offence it is not dishonoued for want of funds.

Question : Company A, which had placed an Inter corporate deposit with company B against Demand promisory note, receipts and post dated cheques. The cheques were bounced and company A filed section 138 cases on company B and  its directors. While the matter is being heard, now the company A has filed “company winding up petition” against company B for recovery of the same money. Now the issue is – Will both run in parallel or can company B pray for staying of section 138 cases, until the winding up petition is disposed off?  – If so, what are the appropriate laws or precedences of any highcourt/supreme court judgements?

Answer: The legal position is such that civil and criminal proceedings regarding dishonour of same cheque can continue side by side. It is open to the aggrieved party to resort to either of the one or both. There is no legal bar if civil and criminal proceedings continue simultaneously.

The position in case of winding up of company is such that mere filing of application for winding up of company will not act as a bar to proceedings under section 138 of the Negotiable Instruments Act against that company. The same has been held in 1999 (1) Bank CLR 687.

Question : I am partner of a Partnership firm, comprising of Seven partners. Two of the partners, are running the business and they are working partners taking care of the day to day affairs of the firm. Other five partners, including my self is not in station and is sleeping partners. The cheques can be signed and issued by the working partners. In case, a cheque bounces and legal action takes place under section 138, are all the seven directors liable for legal action, or only those who have signed the cheque ?

Answer: The law in case of offence by companies is such that If the person committing an offence under section 138 of the Negotiable Instruments Act is a company, every person who, at the time the offence was committed, was in charge of and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
As such, Every director of the company is not automatically vicariously liable for the offence committed by the company,  only such director or directors who were in charge of and responsible to the company for the conduct of the business of the company at the material time shall be deemed to be guilty.
And there must be a specific averment in the complaint that at the time the offence was committed, person accused was in charge of and responsible for the conduct of the business of the company.
Note: Company means : any  corporate and includes a firm or other association of individuals. And Director in relation of firm means a partner in the firm.


This site uses Akismet to reduce spam. Learn how your comment data is processed.