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CS Professional · Banking and Insurance - Laws and Practice · Payment and Collection of Cheques and Other Negotiable Instruments

Ravi Traders issued a cheque to Kiran Metals. When it was dishonoured for insufficient funds, Ravi argued in the Section 138 prosecution that when he issued the cheque he honestly believed his account held enough balance and had no reason to expect dishonour. Under the Negotiable Instruments Act, 1881, how will this defence be treated?

The defence fails. Section 140 says that in a section 138 prosecution it is no defence that the drawer had no reason to believe, when issuing the cheque, that it might be dishonoured for the stated reasons. Honest belief about an adequate balance is therefore irrelevant.

  1. AIt is a valid defence if his belief was honest and he can show past regular balances
  2. BIt is not a defence, since the drawer's lack of reason to believe in dishonour is expressly barred as a defenceCorrect
  3. CIt is a defence only if the cheque amount was below Rs 1 lakh
  4. DIt is a defence only if the payee had accepted a post-dated cheque

Explanation

Section 140 provides that it shall not be a defence in a prosecution under section 138 that the drawer had no reason to believe, when he issued the cheque, that it may be dishonoured for the reasons stated in that section. Honest belief therefore does not help Ravi. The other options invent exceptions that the Act does not contain.

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