Cheque Returned with 'Refer to Drawer' Endorsement: Does It Amount to Dishonour?

Imagine handing over a cheque for a business transaction, only to have it bounced back from the bank with the cryptic note Refer to Drawer. As a payee, you're left wondering: Does this constitute cheque dishonour under Section 138 of the Negotiable Instruments Act, 1881 (NI Act)? Can you proceed with legal action without a formal bank return memo?

This is a common dilemma in India, where cheque bounce cases form a significant portion of criminal litigation. The short answer is yes—such an endorsement generally suffices as proof of dishonour. Indian courts have repeatedly affirmed that endorsements like Refer to Drawer, Stop Payment, or Exceeds Arrangement on the cheque itself establish the cause of action under Section 138, even absent a separate return memo. This blog post delves into the legal nuances, judicial precedents, and practical tips, drawing from key cases and related sources.

The Core Legal Question: Cheque Returned with 'Refer to Drawer' – Is It Dishonour?

Under Section 138 of the NI Act, a cheque is deemed dishonoured if it's returned unpaid by the bank due to insufficient funds or exceeding arrangements, among other reasons. The payee must then issue a demand notice within 15 days of dishonour, and if unpaid within 15 days of notice receipt, a complaint can be filed.

The pivotal query is: Cheque is Returned with the Endorsement Refer to Drawer Whether it Amounts to Dishonour of Cheque? Courts answer affirmatively. An endorsement on the cheque back, indicating the reason for non-payment, serves as conclusive evidence of dishonour. This holds true regardless of a separate memo, streamlining proceedings for complainants.

J. Veeraraghavan VS Lalith Kumar - Dishonour Of Cheque (1994)

J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

Legal Recognition of Bank Endorsements as Proof of Dishonour

Indian jurisprudence consistently treats bank endorsements directly on the cheque as valid records of dishonour. Reasons like Refer to Drawer, Stop Payment, or Exceeds Arrangements signal non-payment and trigger Section 138 liability.

In a landmark observation, the court noted: Once a cheque is dishonoured, whatever be the reason therefor, it behoves upon the payee or the holder in due course to issue a notice in writing to the drawer of the cheque within 15 days from the date of such return... It clarified that endorsements such as refer to drawer, instructions for stopping payment, or exceeds arrangements on the cheque itself are sufficient.

J. Veeraraghavan VS Lalith Kumar - Dishonour Of Cheque (1994)

Similarly: The endorsement on the cheque, such as 'refer to drawer' or 'stop payment,' is recognized as sufficient cause of dishonour.

J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

Examples from Related Cases

Other judicial decisions reinforce this. For instance, a cheque returned with Account Closed via a bank memo was upheld as dishonour: Complainant presented Ex.P2 cheque... but the cheque was returned unpaid with an endorsement 'Account Closed' and the cheque return memo is Ex.P3... 2024 Supreme(Online)(Telangana) 47050

In another scenario: The return made by the Broker’s Banker/ICICI through a Return Slip Memo... was with an endorsement ‘Contact drawer/drawee Bank present again’. While the bank contested, the endorsement stood as initial proof. 2025 Supreme(Online)(SCDRC) 24529

Endorsements like No sufficient amount have also been pivotal: He has presented the said cheque... However, it is returned by the opponent Bank with the endorsement ‘No sufficient amount’ is not disputed. 2025 Supreme(Online)(SCDRC) 26279

VINAYAK ABARAO HIWALE PATIL vs MANAGER, STATE BANK OF INDIA

These cases illustrate that varied endorsements—beyond just Refer to Drawer—consistently qualify as dishonour triggers.

Impact of No Separate Return Memo

A frequent defense by drawers is the lack of a bank-issued return memo. Courts dismiss this: The endorsement on the cheque is deemed the bank's official reason and adequate evidence.

Explicitly: The return by a Banker of a cheque unpaid bearing an endorsement 'account closed,' will give rise to a cause of action for launching a prosecution for an offence u/s. 138...

J. Veeraraghavan VS Lalith Kumar - Dishonour Of Cheque (1994)

Further: The return by a bank of a cheque with an endorsement 'stopped payment' or other reasons, is sufficient to initiate proceedings, and the complaint need not specify the reason for dishonour in detail, as the endorsement itself suffices.

J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

This principle extends to timing issues, as in: The cheques ought to have been returned back as per the memo on 16.05.2020 and the reason for of the cheque on 16.05.2020... emphasizing statutory timelines post-endorsement.

MOHAMMAD RAMZAN GANIE vs ABDUL RASHID SHEIKH

Judicial Precedents and Presumptions

Section 138 presumes the drawer's liability upon dishonour, rebuttable only by probable defense. Section 138 of the Act is a penal provision wherein if a person draws a cheque... and it is returned unpaid... such person shall be deemed to have committed an offence. 1998 2 Supreme 471

Courts prioritize the endorsement's clarity over formalities, upholding convictions where endorsements like Refer to Drawer are present.

J. Veeraraghavan VS Lalith Kumar - Dishonour Of Cheque (1994)

J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

Exceptions and Limitations

While endorsements are potent, caveats apply:- The endorsement must clearly state a valid reason; ambiguity may necessitate a return memo or further proof.

J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

J. Veeraraghavan VS Lalith Kumar - Dishonour Of Cheque (1994)

In cases like Thus, the complainant failed to prove that, at the relevant time there was no hold on the account or no reason for opponent to dishonour the cheque, courts scrutinize context. 2025 Supreme(Online)(SCDRC) 26279

Practical Recommendations for Payees and Drawers

• For Payees: Preserve the endorsed cheque as primary evidence. Issue notice promptly citing the endorsement. Obtain a return memo for robustness, though not mandatory.
• For Drawers: Ensure sufficient funds or clear instructions. Respond to notices with defenses like lost cheques, but note presumptions favor payees.

  J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

• Consult professionals early—timelines are strict.

Key Takeaways

• Endorsements like Refer to Drawer on returned cheques generally constitute dishonour under Section 138 NI Act.

  J. Veeraraghavan VS Lalith Kumar - Dishonour Of Cheque (1994)

• No separate memo needed if endorsement is clear.

  J. Veeraraghavan VS Lalith Kumar - Crimes (1994)

• Backed by precedents across Account Closed, Stop Payment, and more. 2024 Supreme(Online)(Telangana) 47050 2025 Supreme(Online)(SCDRC) 24529

Disclaimer: This post provides general insights based on judicial trends and is not legal advice. Laws evolve; consult a qualified lawyer for your situation.

In conclusion, a cheque bearing Refer to Drawer empowers payees to act decisively under the NI Act, promoting cheque integrity in transactions.