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2022 8 Supreme 240 : Section 138 of the Negotiable Instruments Act applies only if the cheque, after a part‑payment has been made, is endorsed under Section 56 to reflect that payment. If the part‑payment is not endorsed and the unendorsed cheque is presented and dishonoured, the cheque no longer represents a legally enforceable debt at the date of presentation, and the offence under Section 138 is not attracted. Conversely, if the cheque is properly endorsed for the part‑payment and is later dishonoured, Section 138 will stand attracted.Checking relevance for ROHITBHAI JIVANLAL PATEL VS STATE OF GUJARAT...

2019 3 Supreme 662 : Section 138 of the Negotiable Instruments Act applies to cheques drawn for the discharge, in whole or in part, of any debt or liability. The cited case confirms that even when a cheque is issued as part payment of a loan, the presumption under Section 139 arises and Section 138 is applicable if the cheque is dishonoured.Checking relevance for Sumeti Vij VS Paramount Tech Fab Industries...

2021 2 Supreme 709 : Section 138 of the Negotiable Instruments Act remains applicable even when a cheque is issued for the discharge of a debt or liability in whole or in part. Under Section 139, a presumption is that the holder received the cheque for payment of the debt, whether full or partial. The accused must rebut this presumption with evidence; otherwise, the offence under Section 138 stands.Checking relevance for Goa Plast (P) LTD. VS Chico Ursulu D''''souza...

2003 8 Supreme 490 : Section 138 of the Negotiable Instruments Act is triggered when a cheque is drawn for the discharge, in whole or in part, of any debt or other liability. Therefore, even if part payment has been made against the cheque, the provisions of Section 138 can still apply if the cheque is dishonoured.Checking relevance for R. Vijayan VS Baby...

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1998 2 Supreme 471 : Section 138 of the Negotiable Instruments Act applies when a cheque is dishonoured, regardless of any part‑payment that may have been made. Once the cheque is issued, the presumption under Section 139 arises and the drawer can be prosecuted under Section 138 if the cheque is returned unpaid.

AI Overview...

Section 138 of the Negotiable Instruments Act (N.I. Act) - The section pertains to offenses related to dishonored cheques, regardless of whether the cheque was issued for loans, transactions, or security purposes. The act aims to prevent dishonesty by ensuring that cheques are drawn with sufficient funds and proper signatures. A cheque issued with a signature that differs from the account record can still attract liability under Section 138, provided other procedural requirements are met ["2025 0 Supreme(Kar) 343"].
Signature Difference as Grounds for Dishonor - Multiple cases confirm that a cheque dishonored due to Drawers signature differs or signature differs can attract liability under Section 138. Courts have held that such discrepancies, especially when endorsed by banks, do not bar the initiation of proceedings if the procedural safeguards are followed. The object of Section 138 is to promote credibility in negotiable instruments, and signature mismatch is recognized as a valid reason for dishonor that can lead to prosecution ["2023 0 Supreme(Cal) 435"], ["2023 Supreme(Online)(MAD) 5943"], ["2025 Supreme(Online)(Guj) 5251"], BANUMATHI 2018.
Legal Presumption and Burden of Proof - When a cheque is dishonored for signature mismatch, the presumption of debt under Section 139 may still be invoked, but the accused must establish sufficient funds or valid reasons for the signature discrepancy during trial. Courts have emphasized that dishonor due to signature differences does not automatically exempt the drawer from liability, especially if procedural steps like notice issuance are duly followed ["2023 Supreme(Online)(MAD) 5943"], ["2023 Supreme(Online)(Mad) 99931"], ["2025 Supreme(Online)(HP) 8684"].
Judicial Interpretations - Courts have consistently held that dishonor for reasons like signature mismatch or Drawers signature differs does not negate the liability under Section 138, provided the complainant has fulfilled all procedural requirements, including notice. The purpose of the law is to uphold the credibility of negotiable instruments, and technical discrepancies like signature differences are recognized within this framework ["2025 Supreme(Online)(Mad) 54738"], BANUMATHI 2018.

Analysis and Conclusion

The signature of the drawer, whether it differs or not, is a crucial factor in dishonor cases under Section 138. However, courts have clarified that a dishonored cheque due to signature mismatch still attracts liability under Section 138 if all procedural safeguards are adhered to. The primary aim of the law is to prevent dishonesty and promote trust in negotiable instruments. Therefore, a drawer's signature difference alone does not absolve them from liability, especially if the cheque was issued for legitimate debt and proper legal procedures, including notice, have been followed.

References:- Section 138 of the Negotiable Instruments Act, 1881- Judicial cases confirming liability despite signature differences (e.g., Banumathi, 2018; Gujarat SC 2012)- Legal principles emphasizing procedural compliance and object of the law

Does Stopping Payment on a Cheque Constitute Criminal Liability Under Section 138 of the NI Act?

Payment Stopped Cheque: Does It Attract Liability Under Section 138 of NI Act?

Imagine issuing a cheque to settle a business debt, only to instruct your bank to stop payment at the last minute. When the cheque bounces back with the memo 'Payment Stopped by Drawer,' does this trigger criminal liability under Section 138 of the Negotiable Instruments Act, 1881 (NI Act)? This is a common query for businesses, individuals, and legal professionals navigating cheque-related disputes.

In this post, we delve into whether 'payment stopped by drawer' constitutes an offence under Section 138 NI Act. We'll analyze key legal principles, relevant case laws, and distinctions from other dishonour reasons like signature discrepancies. Note: This is general information based on judicial precedents and not specific legal advice. Consult a qualified lawyer for your situation.

Overview of Section 138 NI Act

Section 138 NI Act punishes the dishonour of a cheque due to 'insufficiency of funds' or if 'the amount exceeds the amount arranged to be paid from that account.' But does this cover 'payment stopped by drawer'? Judicial interpretations have expanded the scope.

The Supreme Court has clarified that the phrase 'insufficiency of funds' is a genus, encompassing specific reasons like 'account closed,' 'payment stopped,' or 'referred to the drawer.' These are 'species' of the broader category, making stop payment a valid ground for prosecution under Section 138.

Laxmi Dyechem VS State of Gujarat

For instance, dishonour for reasons such as 'account closed', 'payment stopped', 'referred to the drawer' are only species of that genus.

Laxmi Dyechem VS State of Gujarat

This ruling underscores the legislative intent to ensure banking efficacy and uphold contractual obligations. 2024 0 Supreme(MP) 723

Key Legal Principles on Payment Stopped Cheques

Dishonour Triggers Liability: A cheque returned unpaid due to stop payment instructions qualifies as dishonour under Section 138, provided other conditions are met—like presentment within validity and failure to pay within 15 days of notice. 2012 8 Supreme 274
Presumption Under Section 139: Once dishonour is established, Section 139 presumes the cheque was issued for a legally enforceable debt. The drawer must rebut this presumption with evidence, such as no underlying debt or valid stop payment reason (e.g., fraud). 2023 1 Supreme 691 2005 0 Supreme(Kar) 595
Burden of Proof: The complainant must prove presentment and dishonour, but the onus shifts to the accused to disprove liability. Stop payment alone doesn't absolve; intent and debt validity are scrutinized. 2021 0 Supreme(Kar) 899

Courts emphasize that stop payment implies insufficiency, as the drawer actively prevents honouring the cheque.

Raj Kumar Shukla VS Subodh Agrahari

Whether drawers signatures differs or signature is incomplete, the result is the same that the cheque was dishonoured. While this quote addresses signatures, it analogizes to stop payment outcomes.

Raj Kumar Shukla VS Subodh Agrahari

Relevant Case Laws on Payment Stopped and Related Issues

Supreme Court Precedents: In landmark rulings, non-matching signatures or stop payments attract Section 138 if linked to insufficiency. The expression 'amount of money …………. is insufficient' is a genus and dishonour for reasons such as 'account closed', 'payment stopped'... would constitute a dishonour within the meaning of Section 138.
Laxmi Dyechem VS State of Gujarat
Appeal Allowed on Primary Reason: Where a cheque was dishonoured for insufficient funds (primary) alongside signature issues (secondary), acquittal was set aside. The dishonor of a cheque due to insufficient funds renders secondary reasons irrelevant. 2024 0 Supreme(MP) 723
Quashing Not Warranted: Proceedings aren't quashed merely for stop payment if debt exists. However, if stop payment is due to disputed debt or fraud allegations, trial determines facts. 2012 0 Supreme(UK) 517

Contrastingly, some High Court views limit signature-only dishonours: If the cheque is returned... on the endorsement of 'drawers signature differs'... the complaint filed under Section 138... is not maintainable. 2010 0 Supreme(Bom) 192

Raj Kumar Shukla VS Subodh Agrahari

But payment stopped differs, as it directly ties to fund control.

In another case, during Corporate Insolvency Resolution Process (CIRP), proceedings were quashed not for stop payment but moratorium and director liability issues. 2025 Supreme(Online)(Del) 3591 The reason for dishonour was not 'insufficiency of funds; rather for 'Drawers signature differs'. 2025 Supreme(Online)(Del) 3591

Recent instances affirm: Cheques redeposited after initial 'drawers signature differs' still led to Section 138 complaints if unpaid. 2025 Supreme(Online)(Bom) 6057

Signature Discrepancy vs. Payment Stopped: Key Distinctions

While the provided analysis often intertwines issues, courts distinguish:

Payment Stopped: Universally attracts Section 138, as it's drawer-initiated insufficiency. Presumption applies fully. 2012 8 Supreme 274
Signature Mismatch: Mixed rulings. Some hold it valid (mismatch in signatures is considered a valid ground for dishonor 2012 8 Supreme 274), others require proof of debt and authenticity (the complainant must establish the authenticity of the signature 2021 0 Supreme(Kar) 899). If solely signature defect without fund issues, complaints may fail. 2010 0 Supreme(Bom) 192

A dishonored cheque primarily for insufficient funds establishes liability under Section 138, while secondary reasons like signature discrepancies are irrelevant unless intent to defraud is proven. 2024 0 Supreme(MP) 723

The drawer can rebut by challenging debt or proving alteration, but stop payment rarely excuses without strong evidence. 2005 0 Supreme(Kar) 597

Practical Implications and Recommendations

For Complainants (Payee/Holder): Issue statutory notice promptly. Document debt via agreements, ledgers. If stop payment, highlight drawer intent. Meticulously verify signatures if disputed. 2022 8 Supreme 240
For Defendants (Drawer): Rebut presumption early—prove no debt, security cheque nature, or valid stop reason (e.g., goods not delivered). Forensic signature analysis helps in mismatch claims.
Prevention Tips: Use digital payments or confirm funds before issuing cheques. Businesses: Maintain specimen signatures updated.

Conclusion and Key Takeaways

Yes, a payment stopped by the drawer generally falls under Section 138 NI Act, as it constitutes dishonour akin to insufficiency of funds. Unlike pure signature discrepancies (which may not always trigger liability), stop payment invites scrutiny of intent and debt. Courts uphold prosecutions where presumptions hold, but rebuttals succeed with evidence. 1968 0 Supreme(SC) 203

Key Takeaways:- Stop payment = Valid Section 138 ground.

Laxmi Dyechem VS State of Gujarat

- Section 139 presumption is rebuttable. 2023 1 Supreme 691- Prove debt authenticity; challenge via trial, not quashing. 2012 0 Supreme(UK) 517- Always seek professional advice—outcomes depend on facts.

References:- 2012 8 Supreme 274 2023 1 Supreme 691 2005 0 Supreme(Kar) 595 2022 8 Supreme 240 2005 0 Supreme(Kar) 597 2021 0 Supreme(Kar) 899- 2025 Supreme(Online)(Bom) 6057 2024 0 Supreme(MP) 723 2025 Supreme(Online)(Del) 3591 2012 0 Supreme(UK) 517

Laxmi Dyechem VS State of Gujarat

2010 0 Supreme(Bom) 192

Raj Kumar Shukla VS Subodh Agrahari

Stay informed on evolving NI Act jurisprudence to safeguard your financial transactions.

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