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Section 138 - Dishonor of Cheque for Non-Payment of Salary or Debt
Main Points and Insights:
Analysis and Conclusion:
References:- ["P. N. Salim VS P. J. Thomas - Kerala"]- ["K.BASHEER Vs C.K.USMAN KOYA - Kerala"]- ["Lallu Lal Agrawal VS Damodar Prasad Gupta - Rajasthan"]- ["M. CHILUKUNAIDU, VISAKHAPATNAM DT. VS RATNA CONSTRUCTIONS COMPANY, VISAKAPATNAM AND ANR, REP PP. - Andhra Pradesh"]- ["RAJIV KUMAR VS STATE OF UTTAR PRADESH - Allahabad"]- ["Satyavan Chaplot VS Rajendra - Dishonour Of Cheque"]- ["Satyavan Chaplot VS Rajendra - Crimes"]- ["- Himachal Pradesh"]- ["Mahaplasto Ltd. VS Bhushan Steels And Strips Ltd - 1997 0 Supreme(P&H) 155"]- ["Gillu @ Gulab Chand vs Krishna Devi - Himachal Pradesh"]- ["Tapan Chatterjee @ Tapan Kumar Chatterjee vs State of West Bengal - Calcutta"]
In today's fast-paced business world, salary payments via cheques remain common, especially for employers managing payroll. But what happens when a salary cheque bounces? The question sec 138 for non payment of salary cheque arises frequently, sparking concerns for both employees and employers. Under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), cheque dishonor due to insufficient funds can lead to criminal liability. However, applicability to salary cheques isn't straightforward—it hinges on specific conditions like the reason for dishonor and procedural compliance.
This guide breaks down the legal nuances, drawing from key judicial precedents. Note: This is general information based on established case law and not specific legal advice. Consult a qualified lawyer for your situation.
Section 138 makes the dishonor of a cheque a punishable offense if issued for discharging a legally enforceable debt or liability. The drawer (issuer) commits an offense if:- The cheque is returned unpaid due to insufficient funds or exceeding arrangement.- The payee serves a demand notice within 30 days of dishonor information.- The drawer fails to pay within 15 days of notice receipt. Mahaplasto Ltd. VS Bhushan Steels And Strips Ltd - 1997 0 Supreme(P&H) 155
Salary qualifies as a legally enforceable debt, so bounced salary cheques can attract Section 138 liability—provided the dishonor is due to the drawer's fault, like insufficient funds. Courts presume the cheque was for a valid debt under Section 139, shifting the burden to the accused to rebut it. Udai Shanker Mishra VS Om Prakash Shukla - 2016 Supreme(All) 3080
Under Sections 138 and 139 of the N.I. Act, the court must raise a presumption of liability when the fact of cheque bouncing is prima facie established. The accused can rebut this presumption by leading evidence, but the burden of proof is on the accused. Udai Shanker Mishra VS Om Prakash Shukla - 2016 Supreme(All) 3080
Salary cheques are treated like any other for Section 138, as salary constitutes an enforceable liability. If dishonored due to insufficient funds, and proper procedures are followed, prosecution is viable. Mahaplasto Ltd. VS Bhushan Steels And Strips Ltd - 1997 0 Supreme(P&H) 155
Key conditions include:- Dishonor reason: Must be insufficiency of funds or similar (e.g., exceeding arrangement). Not applicable if account closed before presentation. Sadanandan Bhadran VS Madhavan Sunil Kumar - 1998 7 Supreme 20Nagaraja Upadhya VS M. Sanjeevan - Dishonour Of Cheque (2007)- Payee's actions: Present cheque within validity (3 months). Serve demand notice within 30 days of bank memo, specifying amount and demanding payment. Rahul Builders VS Arihant Fertilizers & Chemical - 2007 7 Supreme 522Kamlesh Kumar VS State of Bihar - 2013 8 Supreme 777
In salary contexts, employees (payees) must prove the cheque was for unpaid salary—a straightforward debt. Employers can't escape liability merely by claiming it was salary; the presumption holds unless rebutted. Sanjabij Tari VS Kishore S. Borcar - 2025 7 Supreme 171
The demand notice is pivotal. It must be in writing, sent within 30 days of dishonor info, demand payment of the cheque amount, and give 15 days to pay. Improper notice invalidates proceedings. Rahul Builders VS Arihant Fertilizers & Chemical - 2007 7 Supreme 522
Emphasizes the necessity of proper demand notice, specifying the amount, and serving it within the statutory period. Rahul Builders VS Arihant Fertilizers & Chemical - 2007 7 Supreme 522
Failure to reply or pay strengthens the complainant's case. No reply infers validity of the claim. Sanjabij Tari VS Kishore S. Borcar - 2025 7 Supreme 171
In one case, absence of statutory notice to the signatory rendered complaints inadmissible. Gauriben Bhimjibhai Sorathiya VS State Of Gujarat - 2023 Supreme(Guj) 993
Not all dishonors trigger liability:- Account closure prior to presentation: No offense if account closed before cheque deposit. Sadanandan Bhadran VS Madhavan Sunil Kumar - 1998 7 Supreme 20Nagaraja Upadhya VS M. Sanjeevan - Dishonour Of Cheque (2007)- Stop payment instructions: Can still attract liability if for a valid debt, per presumption under Section 139. Taramanidevi Purushottamdasji Mahota VS State of Gujarat - 2014 Supreme(Guj) 200- Bank errors or extraneous reasons: Beyond drawer's control. Mahaplasto Ltd. VS Bhushan Steels And Strips Ltd - 1997 0 Supreme(P&H) 155- No legally enforceable debt: Rare for salary, but accused must prove (e.g., no employment dues).
If the dishonor occurs because the account was closed before presentation, or if the dishonor is due to reasons such as instructions to stop payment issued before presentation, the provisions of Section 138 may not be attracted. Sadanandan Bhadran VS Madhavan Sunil Kumar - 1998 7 Supreme 20
Re-presentation after notice doesn't create a new offense without fresh compliance. Narsingh Das Tapadia VS Goverdhan Das Partani - 2000 0 Supreme(Ker) 426
Other sources affirm: Even 'stop payment' doesn't absolve if debt exists. Taramanidevi Purushottamdasji Mahota VS State of Gujarat - 2014 Supreme(Guj) 200
Courts emphasize procedural rigor. In salary disputes, evidence like employment records bolsters claims. Compensation under CrPC Section 357(3) is common for proven cases. Sathyan VS Yousu - 2006 Supreme(Ker) 592
He has not obtained payment which he is in law entitled to on account of the culpable conduct of the accused. He is hence entitled for compensation. Sathyan VS Yousu - 2006 Supreme(Ker) 592
Presumptions under Sections 118/139 hold unless rebutted—e.g., no proof of complainant's incapacity to pay salary doesn't defeat claim. Sanjabij Tari VS Kishore S. Borcar - 2025 7 Supreme 171
Violations like Income Tax Section 269SS don't invalidate NI Act proceedings; salary remains enforceable. Sanjabij Tari VS Kishore S. Borcar - 2025 7 Supreme 171
Jurisdiction: Covers drawing, presentation, dishonor notice, reply, or failure to pay—complainant chooses. Escorts Limited VS Rama MukherjeeEscorts Limited VS Rama Mukherjee
If five different acts were done in five different localities any one of courts exercising jurisdiction in one of five local areas can become place of trial for offence under Section 138 of N.I.Act. Escorts Limited VS Rama Mukherjee
Compounding is encouraged; courts direct interest or lump-sum payments for justice. Sathyan VS Yousu - 2006 Supreme(Ker) 592
For Employees (Payees):- Present cheque promptly.- Issue precise demand notice via registered post/speed post.- Gather salary proofs (appointment letter, payslips).- File complaint in proper court within 1 month of notice period. Rahul Builders VS Arihant Fertilizers & Chemical - 2007 7 Supreme 522
For Employers (Drawers):- Maintain sufficient funds.- Avoid premature account closure.- Respond to notice substantiating no liability.- Consider settlement to avoid conviction. Sanjabij Tari VS Kishore S. Borcar - 2025 7 Supreme 171
Document everything: bank memos, notices, replies.
Non-payment of a salary cheque may invoke Section 138 if dishonored for insufficient funds, proper notice served, and no exceptions apply. However, account closure pre-presentation or procedural lapses shield liability. Courts prioritize cheque credibility, presuming debt validity while allowing rebuttal.
Key Takeaways:- Salary is a valid 'debt' under NI Act. Mahaplasto Ltd. VS Bhushan Steels And Strips Ltd - 1997 0 Supreme(P&H) 155- Demand notice compliance is mandatory. Rahul Builders VS Arihant Fertilizers & Chemical - 2007 7 Supreme 522- Exceptions like pre-presentation closure protect drawers. Sadanandan Bhadran VS Madhavan Sunil Kumar - 1998 7 Supreme 20- Leverage presumptions but prepare evidence.- Opt for compounding for quick resolution.
Stay informed, act swiftly, and seek professional advice to navigate these cases effectively. Cheque bounce disputes underscore the need for reliable payment systems—consider digital alternatives to mitigate risks.
#Section138 #ChequeBounce #NIACT
Until the last unused cheque leaf is returned or the non-return explained to the bank, it must be held that such account holder continues to maintain the account with the bank. This must be so, at least for the purpose of Sec.138 of the N.I. Act. ... The trial court held that all ingredients of the offence punishable under Sec.138 of the N.I. Act have been established. The appellate court took the view that Sec.138 of the N.I. Act does not apply to a....
The only fact which has to be proved in addition to attract the offence under Sec.138 is that in spite of the demand of notice, the drawer of the cheque failed to make payment within 15 days from the date of receipt of the demand. ... If the cheque was honoured, the payment would have been in Indian currency by the authorised dealer, the Bank, for which there would definitely have been corresponding inward remittance in the non-resident account. ... Sec#HL_E....
When the cheque is dishonoured on the ground of insufficiency of funds etc., and payment is not made despite service of notice of demand, as insisted by Sec.138 of the N.I. ... He has not obtained payment which he is in law entitled to on account of the culpable conduct of the accused. He is hence entitled for compensation. As has already been noted, the precise offence under Sec.138 of the N.I. as embodied in the body of Section 138 of the N.I. ... ....
of sec.155(2) of the Code. ... (4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under sec.156(2) of the Code. ... , to the drawer of the cheque, 20 [within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make th....
The dishonor of the cheque may be due to account closure or due to insufficient funds, either of which clearly falling under Sec.138 of the N.I. ... On appreciation of evidence on record, after hearing both the counsel, learned Magistrate found the accused guilty for the offence punishable under Sec.138 of the N.I. ... Section 138 of the Act provides that a drawer of a cheque is deemed to have committed the offence if the following ingredients are fulfilled:(i) A #HL_....
the meaning of Sec. 138. ... , Sec. 138 does not get attracted. ... In that case the drawer of the cheque having insufficient funds to his credit, had, after issuing the cheque, issued ``stop payment instructions to his bank. Further, he had failed to make payment within 15 days of the receipt of notice u/Cl. (c) of Sec. 138 of the Act. ... Since the non-petitioner denied to have received any #HL_....
Other offences if any, committed by the drawer of the cheque either at the time of obtaining the loan, or drawing the cheque are irrelevant for deciding a case under Section 138 of the act, which is a non-cognizable offence, relating to which no person other than the payee or holder in due course of ... A criminal complaint under Section 138 of the Negotiable Instruments Act is already pending against the appellant and other accused. They would suffer the consequences if of fence under Sec#HL_....
Advocate for the accused that the complainant failed to show legally enforceable liability due to him by the accused has also no merit as there is cogent evidence of the complainant supported with documentary evidence as regard the cheque and its dishonour and its non payment by the accused inspite of ... (b) If the accused makes the payment of the cheque amount post the recording of his evidence but prior to the pronouncement of judgment by the Trial Court, the Magistrate may allow compounding of the ....
to the holder in due course of the cheque, within 15 days of the receipt of the said notice the liability under Sec. 138 of the Negotiable Instruments Act would arise. ... Chief Judicial Magistrate held that the notice served by the non-petitioner under Sec 138 (B) of Negotiable Instrument Act. 1881, is not invalid and he rejected the petitioner's prayer for dropping the proceedings instituted againstl1im. ... Having regard to the provisions contained in Sec. #HL_STAR....
Clause (b) of the proviso given to Sec. 138 of the Negotiable Instruments Act requires that the payee or the holder in due course of the cheque, as the case maybe, should make a demand for the payment of the said amount of money by giving a notice in writing to the drawer of the cheque within 15 days ... Chief Judicial Magistrate held that the notice served by the non-petitioner under Sec 138 (B) of Negotiable Instrument Act. 1881, is not invalid and....
Section 138 provides that 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 in part, of any debt or other liability is returned by the bank unpaid, on account of insufficient fund etc. will be deemed to have committed offence. Section 138 despite notice makes non-payment of amount of cheque, a criminal liability and provides maximum punishment of 2 years imprisonment or fine or both. Section 139 which is also relevant envisages presumpt....
It has been held that even though the cheque is dishonoured by reason of 'stop payment' instruction an offence under Sec. 138 could still be made out. The authority shows that even when the cheque is dishonoured by reason of stop payment instructions by virtue of Sec. 139 the Court has to presume that the cheque was received by the holder for the discharge, in whole or in part, of any debt or liability. It is held that the presumption under Sec. 139 is attracted in such a case also. v. Kuchil Kumar Nandi, reported in, 1998 (3) SCC 249.
(8) Inasmuch as the issue in question is directly considered by this Court in K. Bhaskaran (supra), before going into the applicability of other decisions, it is useful to refer the relevant portion of the judgment in paras 10 and 11 of the said case which reads thus: “10. In turn, the appellant sent a reply to the said notice which the respondent received at Bhiwani. In view of non-payment of the cheque amount, the respondent filed a complaint under Sections 138 and 141 of the N.I.
In view of non-payment of the cheque amount, the respondent filed a complaint under Sections 138 and 141 of the N.I. In turn, the appellant sent a reply to the said notice which the respondent received at Bhiwani. (8) Inasmuch as the issue in question is directly considered by this Court in K. Bhaskaran (supra), before going into the applicability of other decisions, it is useful to refer the relevant portion of the judgment in paras 10 and 11 of the said case which reads thus: “10.
In view of non-payment of the cheque amount, the respondent filed a complaint under Sections 138 and 141 of the N.I. (8) Inasmuch as the issue in question is directly considered by this Court in K. Bhaskaran (supra), before going into the applicability of other decisions, it is useful to refer the relevant portion of the judgment in paras 10 and 11 of the said case which reads thus: “10. In turn, the appellant sent a reply to the said notice which the respondent received at Bhiwani.
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