DISHONOUR OF CHEQUE FOR THE REASON ‘STOP PAYMENT’ ATTRACTS SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT, 1881

Introduction

In business transactions, it is common for issue of cheques towards the payment for the purchases/services received. Once the cheque is received the same will be presented by the drawee in the bank and get the amount. If the cheque is not honoured for the reason of insufficient funds or difference in signature, the same is a criminal offence. The drawee of the cheque may initiate criminal action against the drawer for dishonour. In some cases, the drawer used to issue instructions ‘stop payment’ to the bank. If the cheque is dishonour for the reason ‘Stop payment’ the liability will not be dissolved and the same is liable to criminal action.

Ingredients to be fulfilled before filing a criminal complaint

The following are ingredients to be fulfilled before filing a criminal complaint against the dishonour of the cheque-

• The cheque must be issued by the drawer to the person to whom he owes money i.e., legally enforceable debt or liability.
• The cheque must be presented by the drawee in the bank within the validity period of the cheque.
• The cheque should be returned by the bank for the reason of dishonour.
• The drawee shall issue a statutory demand notice within 30 days from the date of receiving the information of cheque dishonour.
• The drawer fails to make payment within 15 days of receipt of the notice.

Case laws

The Supreme Court in ‘MODI CEMENTS LTD. Versus KUCHIL KUMAR NANDI - 1998 (3) TMI 632 - Supreme Court’ held that a drawer who issues a cheque and subsequently instructs the bank not to honour the cheque, it cannot avoid the liability under Section 138 merely because the cheque was dishonoured due to nonstop instructions.

In Dheeraj Sharma Versus State of Uttarakhand & Anr - 2026 (6) TMI 579 - UTTARAKHAND HIGH COURT, the respondent No. 2 issued a cheque to the complainant towards the settlement of dues to the complainant. The complainant submitted the said cheque in the bank for its honour. But the cheque was dishonoured for the reason ‘Sop Payment’ instructions issued by the drawer. After dishonour of the cheques, statutory legal notices were issued to Respondent No.2 within the prescribed period demanding payment of the cheque amount by the complainant. The respondent no.2 did not reply to the notice and also did not pay the dues to the complainant. Therefore, the complainant filed a criminal complaint against the dishonour of cheque. The Trial Court acquitted the respondent No. 2.

Against the said order the complainant filed a criminal appeal before the High Court. The appellant, in this case, submitted the following before the Court-

• After dishonour of the cheques, statutory legal notices were issued to Respondent No.2 within the prescribed period demanding payment of the cheque amount.
• The notices were sent on the correct address of Respondent No.2 and service thereof stood duly established by virtue of presumptions available under Section 27 of the General Clauses Act as well as Section 114 of the Indian Evidence Act.
• Despite service of notice, Respondent No.2 neither replied to the notices nor liquidated the outstanding liability within the statutory period.
• Once execution of the cheques was not denied, statutory presumptions under Sections 118 and 139 of the Negotiable Instruments Act automatically operated in favour of the complainant and the burden had shifted upon Respondent No.2 to rebut the same by leading cogent and probable defence evidence.
• The findings recorded by the learned Trial Court are contrary to the settled principles governing cheque dishonour cases and suffer from serious infirmities inasmuch as the court below proceeded as if the initial burden entirely rested upon the complainant even after admission of issuance and signature upon the cheques.
• The issuance of stop payment instructions by itself cannot absolve the drawer once liability and issuance of cheque stand proved.
• The Trial Court adopted a one-sided approach while appreciating the evidence on record and scrutinized the complainant’s case with hyper technical standards while extending unwarranted benefit to Respondent No.2.

The Government submitted the following before the High Court-

• An order of acquittal ordinarily strengthens the presumption of innocence in favour of the accused and unless the findings recorded by the Trial Court are shown to be wholly perverse or impossible on the basis of the evidence available on record, interference in an appeal against acquittal ought to be exercised with circumspection.
• The defence raised by Respondent No.2 was sufficient to probabilize his case and rebut the statutory presumptions available under Sections 118 and 139 of the Negotiable Instruments Act.
• The impugned judgment does not suffer from perversity warranting appellate interference and the conclusions drawn by the learned Trial Court constitute plausible findings based upon appreciation of oral and documentary evidence.
• Merely because another view may be possible, the same would not furnish a ground to overturn a judgment of acquittal.

The High Court heard the submissions of the parties to the appeal. The High Court analysed the entire case through the documents on record. The High Court observed that the findings recorded by the learned Trial Court suffer from manifest illegality, misapplication of settled legal principles, non-consideration of statutory presumptions or a wholly unreasonable appreciation of evidence, the appellate court would not only be justified but rather duty bound to interfere.

The cheques were admittedly presented by the Appellant within their validity period and were dishonoured by the bank with the endorsement “Stop Payment”. Thereafter, legal notices were issued by the Appellant within the statutory period demanding payment of the cheque amount and despite service of notice, payment was not made within the stipulated time. Consequently, complaint proceedings came to be instituted before the competent court. Thus, the foundational ingredients required for institution of proceedings under Section 138 of the Negotiable Instruments Act stood prima facie established.

The Act clearly incorporates a reverse onus clause and once issuance of cheque and signatures thereupon stand admitted or proved, a mandatory presumption arises that the cheque had been issued towards discharge of a legally enforceable debt or liability. The burden thereafter shifts upon the accused to rebut the said presumption by raising a probable defence. The Trial Court approached the matter as though the entire burden continued to rest upon the complainant throughout the proceedings even after the statutory presumptions had become operational. Such an approach is contrary to the settled principles governing proceedings under Section 138 of the Negotiable Instruments Act.

The High Court observed that the Trial Court while passing the impugned judgment travelled beyond the permissible scope of adjudication and failed to appreciate the evidence in the backdrop of settled legal standards applicable to cheque dishonour proceedings. The conclusions recorded by the learned Trial Court do not appear to be founded upon a legally sustainable appreciation of the presumptions and burden of proof contemplated under the Negotiable Instruments Act.

In view of the above the High Court allowed the appeal and set aside the impugned order. The High Court remanded the matter back to the Trial Court for the earlier disposal of the same.

Conclusion

The dishonour of a cheque with bank’s endorsement ‘Payment stopped by the drawer’ generally falls within the ambit of Section 138 of the Negotiable Instruments Act, 1881 subject to proof of the underlying debt and compliance with the statutory procedure.