Dishonour of Cheque, Noting, Protest and Section 138

A negotiable instrument is said to be 'dishonoured' when the party liable to pay it fails to do so — either by refusing to accept it in the first place (dishonour by non-acceptance, relevant to bills of exchange) or by refusing/failing to pay it when it is properly presented for payment (dishonour by non-payment, relevant to all three instruments, including cheques).

Noting (Sections 99–104A). When a promissory note or bill of exchange is dishonoured, the holder may have the fact of dishonour formally recorded by a Notary Public — a process called 'noting'. The Notary makes a minute on the instrument (or on a slip attached to it) recording the date of dishonour, the reason given for the dishonour, and the Notary's own charges. Noting must ordinarily be done within a reasonably short time after dishonour, so that it stands as reliable, contemporaneous evidence of what happened.

Protest. If the holder wants a more formal record than noting alone, they may ask the Notary Public to draw up a 'protest' — a formal certificate, based on the noting, that authenticates the fact and cause of dishonour. Noting and protest are not compulsory for every dishonoured instrument, but they provide strong, independent evidence of dishonour if the matter later goes to court, and they preserve the holder's rights against parties (like endorsers) who are entitled to notice of dishonour.

Dishonour of a cheque for insufficiency of funds — Section 138. Section 138 was inserted into the Act by the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988, with effect from 1st April 1989, specifically to give cheques greater credibility as an instrument of payment. It provides that where a cheque drawn by a person on their bank account is returned unpaid, either because the balance in that account is insufficient to honour the cheque or because the amount exceeds an arrangement made with the bank, the drawer is deemed to have committed an offence. On conviction, the drawer is punishable with imprisonment for a term that may extend to two years, or with a fine that may extend to twice the amount of the cheque, or with both — these punishment figures reflect amendments made by the Negotiable Instruments (Amendment) Act, 2002.

The procedure the payee must follow before a Section 138 complaint can even be filed:

1. The cheque must be presented to the bank within its period of validity (as a matter of standard banking practice, this is usually taken as three months from the date on the cheque).
2. If the cheque is returned unpaid, the payee (or holder in due course) must give the drawer a notice in writing, demanding payment of the cheque amount, within 30 days of receiving information from the bank that the cheque has been returned unpaid.
3. The drawer must be given 15 days from the date of receiving that notice to make the payment.
4. Only if the drawer fails to make the payment within that 15-day period can the payee proceed to file a criminal complaint against the drawer for the Section 138 offence.

Missing any one of these steps — presenting the cheque too late, sending the notice after the 30-day window, or filing a complaint before the drawer's own 15 days have run out — can be fatal to the complaint, regardless of how genuine the dishonour was.

Presumption in favour of the holder (Section 139). Once a cheque and its dishonour are shown, Section 139 raises a presumption that the holder received the cheque for the discharge, in whole or in part, of a debt or other liability. The burden then shifts to the drawer to prove the contrary (for example, that the cheque was not actually meant to discharge any real debt) — this presumption is a major practical advantage for a genuine payee pursuing a Section 138 case. …