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Sec. 138 NI Act Judgements of SC on Dishonor of Post Dated Cheques

Section 138 NI is a regulating lawful Act meant to safeguard your money. Read on to learn all about it here, starting from the SC's latest judgement on dishonored cheques, cheque bounce cases and about Sec 138 NI Act's punishment as prescribed by Indian Law.
Written by:
Antim Amlan
Published on
12-Sep-19

As per the meaning of post-dated cheque, it is issuing a cheque to a person for a later date. The regulating act for the process of post-dated cheques in India is defined under Sec 138 of the Negotiable Instruments Act, 1881. The validity of these security cheques arises only from the date it has become payable.

Since post-dated cheques are commonly and conveniently issued for security purposes like loans, lease, advances, etc in the business world, let’s take a detailed glimpse of its legality and post-dated cheque validity. 

The latest supreme court judgement on Section 138 under the Negotiable Instruments Act, 1881 passed by the Delhi High Court in January 2018, had drawn a distinction between traditional criminal cases and offences under Section 138 of Negotiable Instrument Act, 1881.

Before we talk about the Post Dated Cheques (PDC) in detail, let’s understand how Section 138 NI Act judgements have drawn the knowledge and awareness of the public towards the scope of utility of cheques. 

Enforceability of Post Dated Cheques as per Section 138

Post-dated cheques are those cheques which are issued by the payer to the payee but one can draw them only on a future date. So, they are enforceable as a negotiable instrument only when it becomes payable on demand. 

In accordance with the Supreme Court judgements on cheque bounce cases in 1998 of PDC, meaning post-dated cheque, will be considered as a bill of exchange. It will not be a cheque before the date mentioned on the said instrument/document. 

It becomes payable only from the mentioned date on the face of the document, which you may be familiar with as post-dated cheque validity.

As per Section 138 under the Negotiable Instruments Act, 1881, Supreme Court's cheque bounce case judgement, by the bill of exchange, means that the document will stay negotiable and will turn into cheque only on the date it will be payable on demand.

Important Components of PDC

The meaning of post-dated cheque may elaborate that the cheque is of value when the signed date arrives. But there are points significant for you and me to know about it other than the dated cheque validity such as:

  • PDC can become cheque only on the date that is present in the document. Prior to the said date, it is just a bill of exchange.
  • Post dated cheque’s validity is only for 3 months from the date that appears on the document.
  • Issuance of PDCs is either as security cheques for loans or as advance. Basically to ensure the trustworthiness of the payer to its supplier.

Applicability of Section 138 - Negotiable Instrument Act

Since dishonour of a cheque is a punishable offence under the Negotiable Instrument Act Section 138, let's understand how is the act applicable to the post-dated cheques.

According to the meaning of post-dated cheque itself, once PDC becomes a cheque i.e. from the date it is payable on demand, it is then applicable as issued to meet a legitimate liability. 

But only due to insufficient funds or the reasons specified in the Act, will the cheque be dishonoured.

In accordance with Section 138 of the Negotiable Instruments Act, dishonouring of the issued cheque by the bank may be either due to insufficient funds in the issuer’s account or if the specific amount on the cheque is more than the amount arranged to be discharged by the issuer. Making such an agreement with the bank is considered a criminal offence and is punishable, provided:

  • One presents the cheque within 6 months before the bank from the date mentioned on the face of the instrument or it is dated cheque validity, whichever is earlier.
  • The beneficiary demands of the drawer to make the payment as specified in the cheque within the due time period. Such a demand should be in writing within 15 days from the date. The bank then informs about the return/dishonour of the given cheque by the drawer.
  • The drawer of the dishonour of cheque couldn’t make the payment of the amount to the drawee within the due period of the cheque or within 15 days of acknowledging the notice, as the case may be.

Legal Punishment on Dishonour of Cheque - Section 138 Negotiable Instruments Act

It clearly indicates any dishonour of PDC for repayment of EMI of a loan is security. Hence, it will come under the purview of the Act.

According to the provisions of the said Act, the legal punishment for dishonouring of PDC is:

  • Imprisonment for maximum up to 1 year,
  • A fine equivalent to two times the amount mentioned on the dishonoured cheque or
  • Both, as decided by the authority.

Latest ruling on dishonour of PDC by the Apex Court - A glimpse!

According to the Supreme Court, the latest judgement on 138 N.I. Act in a cheque bounce case, states that if there is an issuance of PDC of any advance payment for any purchase/supply of goods/services is not a case for discharge of security of a legitimate debt, then it will not attract the Negotiable Instruments Act Section 138.

Who can help you with this?

To get appropriate legal advice regarding your post-dated cheque validity, or anything in regard of Section 138 of NI Act or any other legal queries, you can look for the suitable lawyers on MyAdvo.

Our dedicated team strives to do everything to help the client in taking the better-informed decision. Email us with your concerns and we'll resolve all your legal queries at consult@myadvo.in or via call at +91-9811782573

External Link:

[1] Negotiable Instruments Act,1881 - The Negotiable Instruments Act, 1881, was enacted to characterize and define the law relating to authoritative records like Promissory Notes, Bills of Exchange and Cheques.

[2] Section 138 - Section 138 casts a criminal liability punishable with imprisonment or fine or with both on a person who issues a cheque towards discharge of a debt or liability as a whole or in part and the cheque is dishonoured by the bank on presentation.