Stop Payment of Cheque: Does Section 138 NI Act Apply and How Can a Complaint Be Filed?
A drawer may instruct the bank to stop payment for many reasons, including loss of the cheque, replacement by another instrument, payment through another mode, a genuine dispute over goods or services, or an attempt to avoid an existing liability. A "stop payment" instruction does not, by itself, prevent proceedings under Section 138 of the Negotiable Instruments Act, 1881.
Why may a drawer stop payment of a cheque?
Stop-payment instructions are not necessarily dishonest. A cheque may have been misplaced or stolen, an alternate cheque may have been issued, the liability may already have been discharged, or the drawer may dispute the underlying transaction because of defective goods, deficient services, cancellation, fraud or another contractual issue. The crucial legal question in a Section 138 prosecution is not simply why the instruction was given, but whether the statutory requirements are satisfied and whether a legally enforceable debt or other liability existed.
Does "payment stopped by drawer" amount to cheque dishonour under Section 138?
Yes, it can. In Modi Cements Ltd. v. Kuchil Kumar Nandi, the Supreme Court rejected the proposition that a drawer could avoid Section 138 merely by issuing stop-payment instructions before presentation. The Court emphasized the statutory presumption under Section 139 and held that such instructions do not by themselves bar a Section 138 action.
Therefore, an endorsement such as "payment stopped by drawer" should not be treated as automatically outside Section 138. At the same time, a complainant must still establish the statutory foundation of the case, and the accused remains entitled to rebut the presumption and contest the existence of a legally enforceable debt or liability.
Conditions for filing a complaint in a stop-payment cheque case
- The cheque must have been drawn by the drawer on an account maintained by the drawer.
- The cheque must relate to discharge, wholly or partly, of a legally enforceable debt or other liability.
- The cheque must be presented within its legally applicable validity period. RBI directions presently provide a three-month validity period for cheques from the date of the instrument.
- The bank must return the cheque unpaid, including a return with an endorsement such as "payment stopped by drawer."
- The payee or holder in due course must issue a written demand notice within 30 days of receiving information from the bank regarding dishonour.
- The drawer must fail to pay the cheque amount within 15 days of receipt of the statutory notice.
- The complaint must ordinarily be filed within the limitation prescribed by Section 142 after the cause of action arises, subject to the statutory power of the court to condone delay for sufficient cause.
Important correction: the notice period is 30 days, not 15 days
The payee's period for sending the statutory notice was enlarged from 15 days to 30 days by the 2002 amendment to Section 138. The separate period available to the drawer for making payment after receiving the notice continues to be 15 days.
Can sufficient bank balance defeat a stop-payment complaint?
No automatic defence arises merely because the account allegedly had enough money when the cheque was presented. The legal enquiry extends to the existence of a legally enforceable debt or liability and the statutory presumptions under the Negotiable Instruments Act. A drawer who relies on a genuine dispute, prior payment, absence of consideration, cancellation or another defence must establish facts sufficient in law to rebut the presumption applicable to the cheque.
Accordingly, the question is not simply whether sufficient funds were available. The court examines the transaction, the cheque, the statutory notice, the response, documentary and oral evidence, and whether the accused has rebutted the presumption on the standard applicable in law.
What if payment was stopped because goods were defective or services were deficient?
A genuine commercial or contractual dispute can be relevant, but a stop-payment instruction alone does not determine criminal liability. If the drawer contends that no legally enforceable amount was due when the cheque was presented, supporting material such as correspondence, invoices, inspection reports, cancellation records, credit notes, settlement records or proof of prior payment may become important. The court decides whether the statutory presumption has been rebutted on the evidence.
Section 139: presumption in favour of the holder
Section 139 requires the court to presume, unless the contrary is proved, that the holder received the cheque for discharge, wholly or partly, of a debt or other liability. This presumption is rebuttable. A mere stop-payment instruction does not erase it.
What should the payee do after a stop-payment return?
- Collect and preserve the original cheque and bank return memo.
- Record the exact date on which information of dishonour was received from the bank.
- Issue a properly drafted written demand notice within 30 days.
- Preserve postal/courier receipt, tracking, delivery, refusal or return material relating to service.
- Wait for the statutory 15-day payment period after receipt of notice.
- If payment is not made, calculate complaint limitation carefully and file before the court having jurisdiction under Section 142.
- Keep documents establishing the underlying debt or liability, not merely the cheque and return memo.
Territorial jurisdiction for filing the complaint
| How the cheque is presented | Jurisdiction under Section 142(2) |
|---|---|
| Delivered for collection through an account | Generally, the court within whose local jurisdiction the branch of the bank where the payee or holder in due course maintains the account is situated. |
| Presented otherwise than through an account | Generally, the court within whose local jurisdiction the branch of the drawee bank where the drawer maintains the account is situated. |
Can a stop-payment case result in acquittal?
Yes. "Stop payment" does not create automatic conviction. The complainant must satisfy the statutory requirements, and the accused may rebut the presumptions available under the Act. If the evidence establishes that there was no legally enforceable debt or liability, or another legally sustainable defence succeeds, the accused may be acquitted. Conversely, simply asserting a dispute or saying that sufficient funds were available is not by itself conclusive.
Official legal resources
India Code
- Negotiable Instruments Act, 1881
Supreme Court of India - Modi Cements Ltd. v. Kuchil Kumar Nandi
Reserve Bank of India - Cheque validity directions
Supreme Court of India - official judgments and orders
This article provides general legal information. The result of a Section 138 case depends on the cheque, underlying transaction, notice and service, limitation, jurisdiction and evidence in the individual matter.