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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Imran issued a cheque of Rs 1,50,000 to Gopal on 1 July as a gift, with no obligation to pay. Gopal presented it on 5 July and it bounced for insufficient funds. Gopal gave notice and Imran did not pay. Which is correct?

Imran is not liable under Section 138 because the cheque was a gift and was not issued to discharge any legally enforceable debt or liability. Dishonour for insufficient funds alone does not make the offence; the cheque must be given towards such a debt.

  1. AImran is not liable under Section 138 because the cheque was not issued for a legally enforceable debt or liabilityCorrect
  2. BImran is liable because the cheque was dishonoured for insufficient funds, irrespective of the purpose
  3. CImran is liable only if Gopal proves that Imran intended to cheat him
  4. DImran is liable because a gift is a liability enforceable by law once a cheque is given

Explanation

Section 138 requires a legally enforceable debt or liability. A voluntary gift creates no such obligation, so dishonour does not attract the offence even though all other steps were followed. Insufficiency of funds alone is not enough; intent to cheat is not the test either.

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