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Payment Stopped by Drawer Cheque: Legal Implications

Issuing a cheque and then stopping payment is a common but risky practice. When a bank returns a cheque with the endorsement 'payment stopped by drawer', it often triggers legal battles under Section 138 of the Negotiable Instruments Act, 1881 (NI Act). But does this always lead to criminal liability? This post breaks down the law, key judgments, and practical insights based on Supreme Court precedents. Note: This is general information, not legal advice. Consult a lawyer for your specific case.

What Does 'Payment Stopped by Drawer' Mean?

When a cheque is presented for payment and the drawer's bank returns it unpaid due to stop payment instructions, it receives this specific memo. This happens when the drawer (cheque issuer) directs their bank not to honour the cheque, even if funds are available. Contrary to popular belief, this endorsement does attract Section 138 NI Act in most cases.

The Supreme Court has clarified: even when the cheque is dishonoured by reason of stop payment instructions by virtue of Section 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. (M. M. T. C. LTD. VS Medchl Chemicals And Pharma Private LTD. - 2001 8 Supreme 227) (Modi Cements VS Kuchil Kumar Nandi - 1998 2 Supreme 471)

Key Ingredients of Section 138 Offence

To understand liability, recall the essentials:
- Cheque issued for discharge of a legally enforceable debt or liability.
- Cheque presented within validity period (3 months from date).
- Dishonoured due to insufficient funds, exceeding arrangement, or payment stopped by drawer.
- Payee sends demand notice within 30 days of dishonour.
- Drawer fails to pay within 15 days of notice receipt.

Dishonour for stop payment is explicitly covered, as affirmed in Modi Cements Ltd. v. Kuchil Kumar Nandi: even though the cheque is dishonoured by reason of stop payment instruction an offence under Section 138 could still be made out. (M. M. T. C. LTD. VS Medchl Chemicals And Pharma Private LTD. - 2001 8 Supreme 227)

Supreme Court Rulings on Stop Payment Cheques

Indian courts, especially the Supreme Court, have consistently upheld liability in such cases, emphasizing the statutory presumption under Section 139.

Presumption Under Section 139: Burden on Accused

Once the cheque is proved (signature admitted), courts presume it was issued for a legally enforceable debt. The accused must rebut this by preponderance of probabilities, not beyond reasonable doubt.

In a landmark case, the Court noted: When an accused has to rebut the presumption under Section 139 of NI Act, the standard of proof for doing so is that of ‘preponderance of probabilities’ Therefore, if the accused is able to raise a probable defence... the prosecution can fail. But here, the defence of a lost blank cheque was rejected as it was raised belatedly, stop payment instructions mismatched dates, and no reply to statutory notice. (Rangappa VS Sri Mohan - 2010 4 Supreme 169)

Key takeaway from this ruling:
- Belated defences like 'blank cheque lost' rarely succeed without contemporaneous evidence.
- Failure to reply to demand notice strengthens the complainant's case.
- Slight discrepancies in complainant's story don't rebut presumption if debt existence is prima facie shown.

Stop Payment Does NOT Exempt Liability

Multiple judgments confirm: Stop payment instructions do not negate Section 138.
- Goapescas Showrooms v. Assn. Concerned: Once the cheque is issued by the drawer a presumption under Section 139 must follow and merely because the drawer issues a notice... for stoppage of the payment it will not preclude an action under Section 138. (Modi Cements VS Kuchil Kumar Nandi - 1998 2 Supreme 471)
- In Electronics Trade & Technology Development Corpn. Ltd. v. Indian Technologists, dishonour due to stop payment attracted penal liability. (SHRADHA FOUNDATION (P. ) LTD. VS SURYO UDYOG LTD. - 1997 Supreme(Ori) 309)

Even repeated presentations after assurances can form fresh causes of action, provided within time limits. (Trailokya Mishra vs Shankar Narayan Infrastructure (P) Ltd. - 2025 Supreme(Online)(Ori) 1206)

Common Defences and Their Pitfalls

Accused often raise these, but courts scrutinize them strictly:
- Blank/security cheque lost/misused: Must prove with FIR, timely stop payment mentioning loss, and no debt. Blank cheque defence taken 'belatedly' fails. (Rangappa VS Sri Mohan - 2010 4 Supreme 169) (C. Antony VS K. G. Raghavan Nair - 2002 Supreme(Raj) 1143)
- No enforceable debt: Prove with documents (e.g., full payment receipts). Mere allegation insufficient at quashing stage. (M. M. T. C. LTD. VS Medchl Chemicals And Pharma Private LTD. - 2001 8 Supreme 227)
- Cheque as security: Presumption applies; rebut during trial. (K. Prakashan VS P. K. Surenderan - 2007 7 Supreme 500)
- Post-dated cheque: Valid if tied to existing liability. (Senthilkumar, S/o. Kaliappa Chettiar VS State Of Kerala, Represented By Public Prosecutor, High Court Of Kerala - 2023 Supreme(Ker) 486)

In one case, acquittal was upheld where accused proved no debt via documents, rebutting presumption. But High Court reversals are rare without perversity. (K. Prakashan VS P. K. Surenderan - 2007 7 Supreme 500) (Mohammad Rafeeque VS M. Abdulla - 2008 Supreme(Bom) 1243)

Jurisdiction and Procedural Aspects

Territorial jurisdiction lies where the drawee bank (drawer's bank) is located, as offence completes on dishonour there. Place of presentation or notice dispatch doesn't confer jurisdiction. (Dashrath Rupsingh Rathod VS State of Maharashtra - 2014 5 Supreme 641) (Harman Electronics (P) Ltd. VS National Panasonic India Ltd.)

For companies, complaints by authorised persons (e.g., manager) are valid; substitution allowed. (M. M. T. C. LTD. VS Medchl Chemicals And Pharma Private LTD. - 2001 8 Supreme 227)

Bail considerations: If no flight risk and co-operation shown, bail granted. (Dataram Singh VS State of Uttar Pradesh - 2018 6 Supreme 389)

Rebutting Presumption: Probable Defence Standard

Accused need not 'disprove entirely' but raise probable defence. Examples:
- Successful: Mismatch in goods supplied vs. cheque amount proved no subsisting debt. (Chloride Power Systems & Solutions Limited VS State of West Bengal - 2023 Supreme(Cal) 253)
- Failed: Stop payment without proving sufficient funds or no liability; accused aware cheque with complainant. (Rangappa VS Sri Mohan - 2010 4 Supreme 169)

Trial courts acquit if defence probabilistically stronger, but appellate courts interfere only if perverse. (K. Prakashan VS P. K. Surenderan - 2007 7 Supreme 500) (C. Antony VS K. G. Raghavan Nair - 2002 Supreme(Raj) 1143)

Practical Advice for Payees and Drawers

For Payees (Complainants):

• Send demand notice promptly via registered post/speed post.


• Preserve bank memos, present cheque timely.


• File complaint in drawee bank's jurisdiction.

For Drawers (Accused):

• Avoid casual stop payments; maintain records.


• Reply to notice denying liability with evidence.


• Raise defences early with proof (FIR for lost cheque).

Caution: Courts discourage misuse but won't quash genuine cases prematurely. (Baljeet Singh VS Kulbir Singh - 2019 Supreme(J&K) 2)

Key Takeaways

• Yes, 'payment stopped by drawer' triggers Section 138 – presumption of debt applies. (M. M. T. C. LTD. VS Medchl Chemicals And Pharma Private LTD. - 2001 8 Supreme 227) (Modi Cements VS Kuchil Kumar Nandi - 1998 2 Supreme 471)


• Rebut with probable defence on balance of probabilities. (Rangappa VS Sri Mohan - 2010 4 Supreme 169)


• Jurisdiction: Drawee bank location.


• Defences like lost blank cheques often fail if belated.


• Trial determines facts; quashing rare.

In summary, while stop payment might seem a safe escape, courts view it through Section 139's lens, protecting cheque credibility. For nuanced cases, professional advice is crucial as outcomes depend on facts.

Disclaimer: This post summarizes judicial trends. Laws evolve; outcomes vary. Seek qualified legal counsel.