Cheque under the Negotiable Instruments Act, 1881: Meaning, Types & Characteristics
Insightful breakdown of cheque law—negotiable nature, meaning, features, types, and legal framework under the NI Act.
In commercial transactions, credit operations, and everyday banking, the cheque remains one of the most widely used instruments of payment. Its legal foundation in India is governed primarily by the Negotiable Instruments Act, 1881 (NI Act), which recognises cheques as negotiable instruments, facilitating the smooth functioning of trade, commerce, and financial credibility. Although digital modes of transaction have evolved rapidly in recent years, cheques continue to hold statutory sanctity—especially in business dealings and governmental payments.
Meaning and Definition of Cheque
Section 6 of the NI Act defines a cheque as:
“A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”
Thus, a cheque is essentially a bill of exchange, with one major distinction—it is always payable on demand, and never on a future date. Its usage creates a debtor–creditor relationship between a drawer (who writes the cheque) and the drawee bank (which must honour the cheque if funds are available).
Characteristics of a Cheque
A cheque must possess the following essentials:
| Essential | Explanation |
|---|---|
| Unconditional Order | Must instruct the bank to pay without conditions. |
| Drawn on a Banker | Only a bank can be the drawee—not individuals. |
| Payable on Demand | Must not be post-dated beyond enforceability, nor payable after a fixed time. |
| Signed by Drawer | Without a valid signature, it becomes unenforceable. |
| Certain Payee & Sum | Amount must be definite; payee must be identifiable. |
Types of Cheques under NI Act
Different types of cheques exist based on time, negotiability, and mode of payment:
(a) Bearer Cheque
Payable to the person who bears or presents it. Transferable by simple delivery.
(b) Order Cheque
Payable to a specified person or order. Safer than bearer cheques as endorsement is required.
(c) Crossed Cheque
Two parallel lines drawn on the top left of the cheque indicate that payment must be routed through a bank account only, preventing encashment over the counter. Crossings can be:
- General Crossing
- Special Crossing
- Account-Payee Crossing
(d) Post-dated Cheque
Dated for a future date; payable only from the date written.
(e) Stale Cheque
Cheques not presented within three months from the date of issuance become stale, i.e., invalid for payment.
(f) Truncated Cheque
A truncated cheque is one in which the physical instrument is replaced by a scanned electronic image for clearing purposes. Used under the Cheque Truncation System (CTS), it speeds up processing, reduces handling of paper cheques, and minimises the risk of loss or fraud.
Each variation carries specific commercial implications. For instance, crossed cheques are more secure for business transactions, while bearer cheques, though convenient, carry a risk of misuse.
Parties to a Cheque
| Party | Role |
|---|---|
| Drawer | Person issuing and signing the cheque. |
| Drawee | The bank instructed to make payment. |
| Payee | Person in whose favour the cheque is drawn. |
| Holder / Holder in Due Course | Person legally entitled to possession, with rights to receive payment. |
A holder in due course (HDC) enjoys extensive protection under the Act—making cheques easily negotiable instruments of trade.
Presumptions under NI Act
Sections 118 and 139 create statutory presumptions in favour of validity and liability:
- Section 118 presumes consideration, date, transfer, endorsement, and proper stamp.
- Section 139 presumes that the cheque was issued for discharge of a legally enforceable debt or liability.
These are rebuttable presumptions, meaning the drawer may lead evidence to show the absence of debt, coercion, or misuse. However, the burden of proof shifts to the accused, making cheque bounce cases considerably prosecution-friendly.
Cheque Dishonour
Nature and Impact
Dishonour of a cheque is one of the most litigated commercial offences in India. Section 138 of the NI Act was introduced through the 1988 amendment to curb cheque fraud and strengthen credit discipline.
It criminalises dishonour due to insufficient funds, or if the account is closed, payment stopped, or exceeds arrangement, thereby protecting the payee’s financial interest.
Essential Ingredients of Offence
For Section 138 to apply, the following must be satisfied:
| Condition | Requirement |
|---|---|
| Cheque issued | Must be for repayment of a legally enforceable debt/liability. |
| Presentation | Within 3 months or the validity period. |
| Dishonour | Bank return memo specifying the reason for dishonour. |
| Legal Notice | Written demand notice within 30 days of dishonour. |
| Waiting Period | The accused must fail to pay within 15 days of receiving notice. |
| Filing Complaint | Must be instituted within one month of the cause of action. |
Only when all conditions are satisfied does criminal liability arise.
Conclusion
The concept of cheque under the NI Act, 1881 reflects a unique blend of contract, commercial integrity, and criminal enforcement. By granting statutory recognition and creating a stringent mechanism against dishonour, the law upholds trust in financial transactions. Section 138 is a powerful tool ensuring that obligations are honoured and financial defaulters are held accountable. Though digital alternatives grow, the cheque continues to survive, adapt, and legally secure commercial relationships.
A legally enforceable cheque is more than a signed paper—it represents credibility, assurance, and accountability in commerce. The NI Act ensures that this trust is not violated and that monetary promises become legally protected commitments.
